of sustainable and responsible investment · the impact of sustainable and responsible investing 2...

O F S U S TA I N A B L E A N DRESPONSIBLE INVESTMENT

THE IMPACT OF SUSTAINABLE AND RESPONSIBLE INVESTING 1

2 | FOREWORD

3 | EXECUTIVE SUMMARY

6 | INTRODUCTION

7 | CHAPTER ONE: Changing The Investment Industry And Adding Options For Investors

15 | CHAPTER TWO: Improving Companies Through Active Ownership And Engagement

28 | CHAPTER THREE: Helping Communities And Individuals

35 | CHAPTERFOUR:InfluencingPublicPolicyAndDevelopingGlobal Standard-Setting Organizations

46 | CONCLUSION

September2013

Disclaimer: This paper is provided for informational purposes only. It does not constitute investment advice. It is drawn from publicly-available documents and from information provided by members of US SIF: The Forum for Sustainable and Responsible Investment. The information in this report, including examples of impact, should not be construed as an offer to invest or a form of marketing. The paper is not an endorsement of any firm or organization highlighted in this report.

Table of


The US SIF Foundation is pleased to share this paper that highlights the positive impact that sustainableandresponsibleinvestinghashadoninvestorsandtheinvestmentindustry,oncompanies,onindividualsandcommunities,andonpublicpolicy.TheUSSIFFoundationisa501(c)3organizationthatundertakeseducational,researchandprogrammaticactivitiestoadvancethemissionofUSSIF:TheForumforSustainableandResponsibleInvestment.Thispaperexamineshowsustainableandresponsibleinvestorshaveengagedtheinvestmentindustry,companies,individuals,communitiesandgovernments–eitherindividuallyorcollectively–toaddressenvironmental,socialandgovernance(ESG)challengesandtoreformthewaybusinessisconducted.Itpresentsexamplesofhowtheseinvestorshavemadeadifferencethroughtheirapproachesnotonlytopublicequityinvesting,butalsotosuchassetclassesasprivateequity,cash,fixedincome,realestateandinfrastructure.

This paper is designed to:

a)Documentsomeofthemanysuccessesofthesustainableandresponsibleinvestingfieldoverthepasttwentyyearsandbysodoing;

b)Betterallowsustainableandresponsibleinvestment(SRI)practitioners,suchasassetmanagers,investmentadvisorsandassetowners,tocommunicatehowSRIhasinfluencedtheinvestmentindustry,companies,communities,publicpolicyand globalstandards.

USSIFwishestoacknowledgethefollowingindividualsfortheirguidanceonthispaper:• Frank Altman,PresidentandCEO,CommunityReinvestmentFund• Francis Coleman,ExecutiveVicePresident,ChristianBrothersInvestmentServices• Julie Fox Gorte,SeniorVicePresidentforSustainableInvesting,PaxWorld Management,LLC

• Paul Hilton,PortfolioManager,TrilliumAssetManagement,LLC• Deborah Momsen-Hudson,VicePresident&DirectorofSecondaryMarketing,Self-Help• Joshua Humphreys,Director,CenterforSocialPhilanthropy,TellusInstitute• Jeannine Jacokes,ChiefExecutiveOfficer,PartnersfortheCommonGood• Tom Kuh,BusinessManager—ESGIndices,MSCI,Inc.• Michael Lent,ChiefInvestmentOfficer,VerisWealthPartners• Craig Metrick,PrincipalandUSHeadofResponsibleInvestment,Mercer• Lincoln Pain,President,EffectiveAssets• Matt Patsky,CEO,TrilliumAssetManagement• Cheryl Smith,ManagingPartner,TrilliumAssetManagement,LLC• Timothy Smith,SeniorVicePresidentandDirectorofESGShareownerEngagement,

Walden Asset Management• David Wood,Director,InitiativeforResponsibleInvestment;HauserCenterfor Non-ProfitOrganizations,JohnF.KennedySchoolofGovernment

• Betsy Zeidman,SeniorFellow,TheMilkenInstitute

Thispaperwillbeupdatedperiodicallytoreflectadditionalexamplesofimpact.TheUSSIFFoundationlooksforwardtoyourcomments.

Lisa Woll, CEO


Sustainableandresponsibleinvestorshavebeen,andcontinuetobe,aforceforpositivechange.Theyhavehelpedtoimprovetheenvironmental,socialandgovernance(ESG)practicesofcompaniesintheUnitedStatesandaroundtheworld,indirectlybenefitingcountlessindividualsandcommunities.Theyhavepursuedinvestmentstrategiesthatfostereconomicdevelopmentandexpandfinancialservicesinlower-incomecommunities.Toadvancetheirprinciplesandprioritiesonalargerscale,sustainableinvestorshaveadvocatedfornationalandglobalpoliciesandcreatednationalandinternationalstandard-settingorganizations.

Sustainableandresponsibleinvestmentprofessionalshavechangedtheinvestmentindustrybychallengingandshiftingtraditionalnotionsofinvestmentpractices.TheyhaveadvancedtheinclusionofESGconsiderationsininvestmentdecisionstogeneratebothpositivesocietalimpactandlong-termcompetitivefinancialreturns.Insodoing,theyhavebroughttomarketnewinvestmentoptionsandservicesacrossawidearrayofassetclassesthatappealtobothindividualandinstitutionalinvestors,performcompetitivelyandhelpaddressserioussocialandenvironmentalchallenges.

Itisimportanttonotethatmanyoftheseaccomplishmentshavebeenachievedthroughclosecollaborationwithotherstakeholdersincludingbusiness,governmentandcivilsociety.Throughyearsofbuildingpartnershipsandrelationships,sustainableandresponsibleinvestorsandinvestmentprofessionalshaveworkedincooperationwithotherstodemandpositivechange.

Changing the Investment Industry and Adding Options for Investors:Sustainableandresponsibleinvestorsarecontributingtofar-reachingchangesintheinvestmentandfinancialservicesindustries.Sustainableandresponsibleinvestment(SRI)isawidelypracticedinvestmentdisciplinewithmorethan$3trillioninassetsundermanagement,accordingto US SIF’s 2012 Report on Sustainable and Responsible Investing Trends in the United States,anditisgainingadherentsevenininvestmentfirmsthathavenothistoricallyidentifiedthemselvesasSRIpractitioners.BybuildingESGcriteriaintoinvestmentanalysisandportfolioconstruction,investorsseektoidentifymoreresponsiblecompaniesforpotentialinvestmentandtoimprovethesustainabilityperformanceofthoseinwhichtheyarealreadyinvested.Infact,manypubliclytradedcompaniesaimtobeselectedforthesefundsandpromotetheirinclusioninSRIportfoliostotheirstakeholders.EffortstobuildESGinvestmentcriteriaintoinvestmentportfolioconstruction,proxypolicies,anddivestmentstrategieshaveresultedinpositivechangesinthewaybusinessisconducted.TestamentstothegrowingimpactofSRIontheinvestmentmarketplacecanbefoundinthecreationofSRIindicesandinthedevelopmentofthePrinciplesforResponsibleInvestment(PRI)whosesignatories—withassetsover$30trillion—arenowestimatedtorepresent20percentoftheestimatedtotalvalueofglobalcapitalmarkets.1

ThegrowthofthesustainableinvestingfieldandthemainstreamingofESGintegrationhaveledtodiverseSRIinitiatives,suchasprogram-andmission-relatedinvestingcampaignsbyfoundationsandimpactinvestmentsbyinstitutionsandindividuals.IndividualinvestorshavebenefitedbygainingaccesstoretirementplanswithSRIoptionsandhavingtheabilitytoworkwithspecializedSRIfinancialadvisors.Individualinvestorsalsobenefitfromtheirabilitytoinvestincommunitiesdirectlythroughbanks,creditunions,andothercommunitydevelopment

Executive


financialinstitutions,aswellasinretailproductsandonretailplatformsfordomesticandinternationalcommunitydevelopmentlending.

Improving Companies through Active Ownership and Engagement: Sustainableandresponsibleinvestorshavemadeadifferencebyusingactiveshareownershipandengagementstrategieswithsomeofthelargestglobalcorporationstoencouragemoreresponsibleand forward-thinkingpractices.Forexample,investors—ofteninconcertwithcivilsocietyorganizationsandmulti-stakeholdergroups—havepersuadednumerouspubliclyheldcompanies to:

• Improveclimateriskdisclosure• Adoptsustainableforestrypractices• Addresspoorlaborandhumanrightsconditionsintheirglobalsupplychains• Pledgenottodiscriminateagainstemployeesonthebasisoftheirsexualorientation• Disclosehealth,safetyandenvironmentalrisksassociatedwithhydraulicfracturing• Improveaccountabilityofexecutivepaypractices• Promotegenderandracialdiversityontheirboardsofdirectors,and• Issuedetailedreportsonsustainability

Engagementstrategieshavealsobeenusedsuccessfullytohelpshapesustainablepoliciesatprivatelyheldcompaniesonsuchissuesasthelaborconditionsintheirglobalsupplychainsandtheirenvironmentalandcommunityrelationspractices.

Helping Communities and Individuals:Sustainableandresponsibleinvestorshaveassistedindividualsandcommunities,boththroughdirectinvestmentsincommunitydevelopmentinitiativesandbyhelpingtobringaboutchangesincorporatebehaviorthatultimatelybenefitcommunitiesorreduceharm,suchasallowingaccesstocleanwater,stoppingdeforestationandcreatingbetterworkplaces.IntheUnitedStatesandinternationally,investmentsincommunitydevelopmentfinancialinstitutionshavehelpedensurethatcapitalreachesthosewhotraditionallyhavebeendeniedaccesstoitandneeditmost.Throughtheseinvestments,investorshaveimprovedaccesstoaffordablehousinginlow-andmoderate-incomecommunities,supportedsmallbusinesses,helpedcreatejobs,andprovidedcommunitieswitheducation,healthcare,andchildcare.Socialventurecapital,investmentsinearlystageenterprisesthatoffersolutionstosociety’senvironmentalandsocialneeds,hasalsoplayedanimportantroleinassistingindividualsandcommunities.Sustainableinvestorshaveprovidedinnovativesocialventureandmicroenterpriselendingininternationalmarkets.Forexample,theseinvestorshavemademicro-financingavailabletomanywomenentrepreneursinAfrica,AsiaandLatinAmerica.

Influencing Public Policy and Developing Global Standard-Setting Organizations: Sustainableandresponsibleinvestorshaveinfluencednationalandglobalpublicpolicyanddevelopedglobalstandard-settingorganizations.

IntheUnitedStates,responsibleinvestorsplayedanimportantroleinadvancingkeyprovisionsoftheDodd-FrankWallStreetFinancialReformandConsumerActof2010 (“Dodd-FrankAct”).Amongtheprioritiesforwhichtheysuccessfullyadvocatedwereprovisionstorequiregreaterdisclosureandaccountabilitybypubliclytradedcompaniesconcerningexecutivecompensationandpaydisparity,facilitateshareholders’abilitytonominatedirectorstotheboardsofportfoliocompanies,curtailthetradeofconflictmineralsfromwar-tornareasofCentralAfrica,andrequirepubliclytradedcompaniesintheextractive


industriestodisclosetheirpaymentstonationalgovernments.ByadvocatingforthecreationoftheConsumerFinancialProtectionBureau,anotherimportantoutcomeoftheDodd-FrankAct,responsibleinvestorscontributedtoprotectingAmericanconsumersfromunfair,deceptiveandabusivefinancialpractices.

Sustainableinvestorshavemobilizedtobringaboutstrongerenvironmentalregulations,helping to ensure that companies report information on their greenhouse gas emissions and risksrelatedtoclimatechange.SustainableinvestorsactivelyendorsedtheUSEnvironmentalProtectionAgency’sproposed—andnowfinal—ruleoncurbingmercuryandothertoxicemissionsfromcoal-andoil-firedelectricgeneratingunits.

Tohelpaddressglobalhumanrightsviolations,sustainableandresponsibleinvestorshavejoinedwithcivilsocietyorganizationstocallforanendtohumanrightsabusesinBurmaandSudan,andmanyhavedevelopedtargeteddivestmentpoliciesforthosecountries.Thesedivestmentstrategieshaveincreasedpublicawarenessofthehumanrightsconcernsinbothcountries,therebyhelpingtobuildpublicsupportforglobaleconomicanddiplomaticpressureontheirgovernments.

SustainableandresponsibleinvestorshaveplayedacrucialroleindevelopingUSandglobalstandard-settingorganizations,suchastheCDP(formerlyCarbonDisclosureProject),Ceres,CouncilofInstitutionalInvestors,GlobalReportingInitiative,InvestorEnvironmentalHealthNetwork,PrinciplesforResponsibleInvestment,UnitedNationsEnvironmentProgramme’sFinanceInitiative,andUSSIF,aswellasotherregionalandnationalsustainableinvestmentforums.Manyoftheseorganizationshavecommissionedandpublicizedresearchthatunderscoresthatenvironmental,socialandcorporategovernanceissuescanposematerialfinancialrisksandopportunitiestocompaniesandthereforeshouldbeconsideredinfiduciaries’duediligenceefforts.Additionally,companiesthatconsiderandreportonESGissuesmay,throughtheseefforts,attractenvironmentallyandsociallyfocusedconsumersandinvestorsandimproveoverallprofitability.

Formorebackgroundonsustainableandresponsibleinvestingandadditionalexamplesofimpact,pleaseseethefollowingreportsauthoredorco-authoredbytheUSSIFFoundation at www.ussif.org:• 2012 Report on Sustainable and Responsible Investing Trends in the United States • Investing to Curb Climate Change: A Guide for the Institutional Investor• Investing to Curb Climate Change: A Guide for the Individual Investor• Expanding the Market for Community Investment in the United States• 2012 Global Sustainable Investment Review• Options and Innovations in Community Investing• Sustainability Trends in US Alternative Investments• Opportunities for Sustainable and Responsible Investing in US Defined Contribution Plans• Resource Guide for Plan Sponsors• Investment Consultants and Responsible Investing: Current Practices and Outlook in the

United States• Creating a Sustainable World: A Guide to Responsible Stewardship of Tribal Assets• Community Investing Toolkit for the Faith Community

www.ussif.org

http://www.ussif.org/files/Publications/12_Trends_Exec_Summary.pdf

http://www.ussif.org/files/Publications/Institutional_Climate.pdf

http://www.ussif.org/files/Publications/SRI_Climate_Guide.pdf

http://www.ussif.org/files/Publications/USSIF_Expanding_Markets.pdf

http://gsiareview2012.gsi-alliance.org/%23/1/

http://www.ussif.org/files/Publications/Options_Innovations_CI_2012.pdf

http://www.ussif.org/files/Publications/2011_AlternativesReport_ES.pdf

http://www.ussif.org/pubs

http://www.ussif.org/files/Publications/2011_ResourceGuide.pdf

http://www.ussif.org/files/Publications/Investment%20Consultant%20FINAL.pdf

http://www.ussif.org/files/Publications/Investment%20Consultant%20FINAL.pdf

http://www.ussif.org/files/Publications/TribalAssets.pdf

http://www.ussif.org/files/Publications/FaithBased_Toolkit.pdf


Sustainableandresponsibleinvestorshaveusedseveralstrategiestoeffectchange,ofteninpartnershipwithotherindividualsandorganizations.WhilethehistoryofsustainableandresponsibleinvestingspansmanydecadesandisoftencitedforitsinfluencetoendapartheidinSouthAfrica,2thispaperfocusesontheimpactthatSRIhashadinthepasttwentyyears.Itpresentsexamplesofhowsustainableandresponsibleinvestorshavemadeimportantadvancesthroughtheirapproaches,notonlywithpublicequityinvesting,butalsowithsuchassetclassesascash,fixedincomeandalternativeinvestmentsthatincludeprivateequity,venturecapital,realestate,hedgefundsandinfrastructureamongothers.

Thepasttwentyyearshaveshownthatenvironmental,socialandgovernance(ESG)factorscanaffectshareholdervalueandcorporateandinvestmentportfolioriskandreturn,discreditingthelongstandingconventionalperceptionthatfiduciarydutyprecludesconsiderationofESGcriteriaininstitutionalinvestmentdecisions.In2005,internationallawfirmFreshfieldsBruckhausDeringerfound,afterexaminingfiduciarylawinninedevelopedmarkets,includingtheUnitedStates,that,“…thelinksbetweenESGfactorsandfinancialperformanceareincreasinglybeingrecognized.”3Onthatbasis,integratingESGconsiderationsintoinvestmentanalysisisclearlypermissibleandisarguablyrequiredinalljurisdictions.CFAInstitute,aglobalnot-for-profitassociationofinvestmentprofessionalsthatgrantstheCertifiedFinancialAdvisor(CFA)andCertificateinInvestmentPerformanceManagement(CIPM)designations,haspublishedaManual for Investors to help them understandandassessESGfactorsinfulfillingtheirfiduciaryresponsibilities.4 Several academicstudieshavealsoshownthatSRIstrategieshaveproducedfinancialperformancecomparabletothatproducedbyconventionalinstruments.5AworkingpaperpublishedbytheHarvardBusinessSchoolfoundevidencethathighlysustainablecompanieshavesignificantlyoutperformedtheircounterpartsoverthelongtermbothintermsofstockmarketandaccountingperformance.6

Chapter One offersexamplesofhowsustainableandresponsibleinvestmentprofessionalshavechangedtheinvestmentindustryandinvestors.Chapter Two provides examples of howsustainableandresponsibleinvestorshaveinfluencedcompaniesthroughshareholderadvocacy,demonstratedbyactiveownershipandengagementstrategies.Chapter Three illustrateshowSRIhasassistedcommunities,notonlythroughinvestmentincommunitybasedfinancialinstitutions,butalsobychangingcorporateactionstobenefitindividualsandcommunities.Chapter Fouroffersexamplesofhowsustainableandresponsibleinvestorshaveachievedprogressonvariousenvironmental,socialandgovernanceissues,byinfluencingpublicpolicyandcreatinginternationalstandard-settingorganizations.


Sustainableandresponsibleinvestmentprofessionalshavechangedtheworldofinvestmentbychallengingthebifurcationbetweeninvestmentandtheimpactsofthatinvestment.SRIhasfundamentally altered the perception of what a sound investment must consider in addition to traditionalmeasuresoffinancialperformance.Today,theinclusionofenvironmental,socialandgovernancefactorsininvestmentdecisionsisnolongeranovelconcept.

Atthestartof2012,approximately$3.3trillioninprofessionallymanagedassetsintheUSmarketconsideredESGcriteriainportfolioconstructionandinanalysis.Workingwithothers,sustainableandresponsibleinvestorsareadvocatingforthedevelopmentofinvestmentstandardsandbestpracticesforthebroaderinvestmentindustry.Thesechangesintheprofessionalinvestmentindustryhavegeneratednewinvestmentoptionsandservicesforbothinstitutionalandindividualinvestors.

TheevolutionoftheinvestmentindustryhasincludedthegrowingacceptanceofESGcriteriaincorporationintotraditionalfinancialanalysis,thecreationofSRIindicesandspecializedstockexchanges,andthegrowthofalternativeinvestmentoptionsforsustainableandresponsibleinvesting.DifferentcategoriesofSRI,includingprogram-relatedinvesting, mission-relatedinvesting,andimpactinvesting,havegainedattentionfromhighnetworthindividualandinstitutionalinvestors.Individualretailinvestorshavealsobenefitedfromthechanginginvestmentindustry.TheyhaveaccesstoexperiencedSRIfinancialadvisors,aswellasincreasedproductoptions.Importantly,agrowingshareofretirementplansareincludingorconsideringtheinclusionofSRIoptions.

Sustainableandresponsibleinvestorshaveinfluencedcompaniesbybuildingenvironmental,social and corporate governance criteria into investment analysis and portfolio construction strategies.Inadditiontoexcluding,overweightingorunderweightingcompaniesonESGcriteria,someinvestorsalsopracticeESGintegrationandusethesefactorstoassessvaluationandattractiveness.Asanextensionofthisanalyticalapproach,anumberofSRIfirmshavecreatedESGorSRIindicestomakeSRIinvestingmoreaccessibletoawidearrayofinvestmentfirmsandtheirclients.

Sustainableandresponsibleinvestorshavedocumentedandpubliclyarticulatedthestrongbusinesscaseforsustainableandresponsibleinvestment.7Asaresult,agrowingnumberofinvestmentfirms—includingmanythathavenothistoricallybrandedthemselvesasSRI—nowintegrateESGcriteriaandquestionsintoinvestmentanalysis.IncreaseddemandbyinvestorsformoreextensiveandcomparableESGdatafromcompanieshasinturngalvanizedthegrowthofcorporatesustainabilityreports.Thesereportsareoftenproducedbycompanies’corporatesocialresponsibilityorsustainabilityprofessionals,theemergenceofwhichisafurtherreflectionoftheinfluenceofsustainableinvesting.

Changing The Investment Industry and Adding Options For Investors


Impact on the Professional Investment IndustryESGCriteriaIncorporationFormanysustainableandresponsibleinvestors,impactoftenstartsbyapplyingESGcriteriaorthemestoinvestmentanalysisandportfolioselection.ESGincorporationisconductedthroughfiveprinciplemethodsandincombinationsthereof:

• Positive screening:Seekingoutcompanies,sectors,orprojectswithidentifiablepositiveESGimpacts,productlinesorcommitments,suchascleantechnologyorrenewableenergysolutions,orprojectsthatrevitalizeurbanneighborhoods.

• Full ESG integration:ExplicitinclusionofESGrisksandopportunitiesintoallprocesses ofinvestmentanalysisandmanagement.

• “Best-of-class” approach:Selectingcompanieswiththebestperformancewithinaparticularsectororindustrygroup.

• Thematic investing:Targetingspecificthemessuchasclimatechangeorhumanrights.• Avoidance or Exclusionary screening: Avoiding or divesting from poor performers regardingESGfactors.

ByconsideringESGcriteria,moneymanagersandinstitutionalinvestorsseektoidentifycompaniesthatareattractiveforinvestmentbecausetheyhavesuperiormanagementpracticesorpresentlowerrisktoinvestorsandotherstakeholders.TheESGcriteriaarenotstatic and have evolved over time to encompass a wide range of indicators and data points andtotakeintoaccountemergingtrends.Thishasledtomoredisclosurefromcompanies,moretoolsandmethodsforthebenefitofallinvestorstoanalyzetheserisksandopportunities,andinmanycasesfavorablerisk/returnbenefitsforinvestorsoverthelongterm.

MoneymanagersincorporateESGissuesacrossarangeofassetclassesandinvestmentvehicles,includingregisteredinvestmentcompanies,suchasmutualfundsandexchange-tradedfunds,toalternativeinvestmentvehicles,suchassocialventurecapital,“double-andtriple-bottomline”privateequityandhedgefunds,responsiblepropertyfundsaswellasothercommingled,pooledproductstypicallyreservedforspecifickindsofinstitutionsorotheraccreditedhigh-net-worthinvestors.

Creation of SRI indicesThepopularityofsustainableinvestinghascontributedtothecreationandgrowthofSRIindices.SincetheMay1990launchofthepioneeringDomini400SocialIndex,nowknownastheMSCIKLD400SocialIndex,therehasbeenadramaticexpansionofindices,alongwithhundredsofuniquesub-indices,whichincorporateESGcriteria.8Bothsustainableinvestmentandresearchfirms,suchasCalvertInvestments,Jantzi-SustainalyticsandWilderShares,offersuchindices,asdootherfinancialservicesgroups,suchasS&PDowJonesIndices,FTSEandMSCIBarra.Leadingglobalstockexchanges,suchasNASDAQOMX,NYSEEuronext,DeutscheBoerseandtheJohannesburgStockExchange,havealsolaunchedSRIindices.

ESGindicesfulfillseveralimportantfunctions:• Establishperformancebenchmarks• Serveasabasisforpassiveinvestmentvehicles• Provide investment universes for active managers• Setstandardsforresponsiblecorporatebehavior


IndicesgeneratehistoricalstatisticsthatsupportadeeperunderstandingofESGinvestingthroughadatastreamthatprovidesobjectiveinformationonhowSRIaffectsperformance, riskandfinancialfundamentals.

Thelongesthistoricaltrackrecordscomefromfourindices:theKLD400,establishedin1990toaddressUSinvestment,theJantziSocialIndex,establishedin2000toaddressinvestmentinCanada,theDowJonesSustainabilityIndex,establishedin2001toaddressglobalinvestment,andtheFTSE4Good,establishedin2001toaddressglobalinvestment.Since 1990,theMSCIKLD400indexandotherSRIindiceshavebeenthesubjectofmanystudies.9

InadditiontoprovidingahistoricaltrackrecordthatgivesinsightsintoESGinvesting,indicesprovideassetmanagerswithavaluablebasisfordevelopinginvestmentproducts.IntheUnitedStates,companiesincludingTIAA-CREFFunds,CalvertInvestments,GreenCenturyandNorthernTrustofferindexedESGmutualfunds.Additionally,iSharesandPaxWorldFundssponsorESGexchange-tradedfunds(ETFs).PaxWorldFundsofferstwoETFsbasedonMSCIsustainabilityindexes.Suchproductstracktheunderlyingindex,typicallyprovidinginvestorswithlow-costalternativestoactivelymanagedfunds.Indexfundsalsohavelowturnover,fitthelong-termorientationofsustainableinvestors,andarepotentialeffectivevehiclesforsupportingshareholderengagementduetolongertermholdingsinsecurities.

Activeequitymanagers—usingquantitativeand/orfundamentalstrategies—canselectcompaniesfromtheinvestmentuniversesetbyanindex,whichallowsthemtobenefitfromtheresearchembeddedinESGindices’selectionprocesses.

AnotherimportantcontributionofESGindicesisthattheysettransparentstandardsforcorporatebehaviorasitrelatestoESGissues.Sinceindicesarerules-based,theyprovideaconsistentyardstickforthecriteriathatqualifycompaniestobeselectedorexcluded.Corporationsunderstandthevalueofinclusioninanindexand,througheffortstoensureinclusioninESGindices,maydemonstratetheircommitmenttoaddressingcorporatesocialresponsibility.Inthisway,ESGindicesprovideabenchmarkforcorporationsandinvestors.

CreationofSpecializedStockExchangesAnotherwaythatsustainableandresponsibleinvestorshaveinfluencedglobalinvestmentpracticesisbypromotingthecreationofspecializedstockexchangesthatrequirecompaniestodisclosesustainabilitydatatoqualifyforlistingorinclusion.Stockexchanges,oftenworkingwithgovernmentagencies,alsohavecreatedSRIindicesorrevisedtheirlistingrequirementstoincludedisclosureofsocialandenvironmentaldatafromlistedcompanies.TheJohannesburgStockExchange,theLondonStockExchange,theSãoPauloStockExchangeandtheBolsaMexicanadeValores(BMV)amongotherexchanges,havebeeninfluentialinincreasingthedisclosureofenvironmentalandsocialinformation.

Asaco-owneroftheFTSEGroup,theLondonStockExchangewasinvolvedearlyinthedevelopmentofSRIindices,byhelpingtolaunchtheFTSE4GoodIndexSeriesin2001.FTSE4Goodenabledinvestorstocomparecompanyperformance,basedongloballyrecognizedcorporateresponsibilitystandards.Theinformationusedintheindex,which

ESG INDICES SERVE AS A BASIS FOR

DEVELOPING INVESTMENT

PRODUCTS, SUCH AS ESG MUTUAL

FUNDS AND EXCHANGE-TRADED

FUNDS.


spansenvironmental,social,ethicalandgovernanceindicators,isupdatedbytheresearch firmEIRIS.FTSE4Goodalsoregularlyconsultskeystakeholdersinupdatingitsindicators andscoringmodel.

InMay2004,theJohannesburgStockExchange(JSE)launcheditsSociallyResponsibleInvestmentIndex,whichidentifiesthosecompanieslistedontheJSEthatmeetminimumcriteriaforintegratingsustainabilityprinciplesintobusinesspracticesandreportingonsustainabilityperformance.Theindex’sindicatorscoverenvironmentalimpact,socialandeconomicsustainabilityandgovernance.TheindicatorsarelooselyalignedwiththeGlobalReportingInitiative(GRI)guidelines,whilereflecting“thecomplexnatureofsocialresponsibilityinSouthAfrica.”Indexedcompaniesmustreportonaminimumnumberofcoreanddesirableindicators,aswellassettargetsinatleastafewareas.TheJSEhascontinuedtoworkwithEIRIS,FTSE4GoodandKPMGtorefinetheindicators,andEIRIShasbuiltapartnershipwiththe

UniversityofStellenboschBusinessSchoolinSouthAfricainordertocarryouttheresearcheachyear.

Aspartofthe2012reviewoftheJSESRIIndex,EIRISconductedaparallelstudyfortheJSEthatassessedstandardsofpublicdisclosureofESGissuesamongSouthAfricancompanies.Thestudyfoundthattwentyofthecompaniesthatqualifiedforthe2012SRIIndexwouldnothavebeenincludedinthatindexifreviewofcompanyperformancehadbeenbasedpurelyonpubliclydisclosedESGinformation.Thisdemonstratesthegapbetweenwhatcompaniesmaybedoingandwhattheyarepubliclysharing—investorsneedtocontinuetoencouragegreaterdisclosurebycompanies.

Similarly,inDecember2005,theSãoPauloStockExchange(BOVESPA)inBrazil,incoordinationwiththeBrazilianMinistryoftheEnvironment,theBrazilianAssociationofPensionFunds,theUnitedNationsEnvironmentProgramme(UNEP)andawiderangeofotherorganizations,createdtheCorporateSustainabilityIndex(ISE)asabenchmarkforsociallyresponsibleinvestments.TheCenterforSustainabilityStudiesattheBusinessAdministrationSchoolofSãoPauloidentifiescompaniesforinclusionintheindex,usingaquestionnairecoveringsocial,environmentalandgovernancecriteriatoassessthesustainabilityperformanceoftheexchange’smostliquidstocks.

Furthermore,inDecember2011theBolsaMexicanadeValores(BMV),theMexicanstockexchange(thesecond-largestexchangeinLatinAmericaaftertheBovespa)announcedthefulllaunchofitssustainabilityindex.ThisindexisbasedontheseventymostliquidsharesontheMexicanStockExchange.Companieseligibleforinclusionontheindexareassessedaccordingtotheirperformance,impactandresponsestoemergingESGissues.BMVworkedwithEIRISandalocalresearchpartnertodevelopthemethodologyandassesseligibleMexicancompaniesforinclusioninthenewsustainabilityindex.Tomeetthelistingrequirementsforthesustainabilityindex,eachcompanyisevaluatedincomparisontothesustainabilitypracticesofitssectorglobally.Mexicancompanieshavetoscoreinthetop 50percentofperformerstobeeligibleforinclusion.

SPECIALIZED STOCK EXCHANGES THAT CONSIDER ESG DATA INCLUDE, AMONG OTHERS: • THE JOHANNESBURG STOCK

EXCHANGE• THE LONDON STOCK EXCHANGE• THE SAO PAULO STOCK

EXCHANGE• BOLSA MEXICANA DE VALORES


Development of New and Innovative Investment Vehicles for SRIInvestmentsinalternativeassetclasses,includingprivateequityandrealestate,havelongplayedavitalroleinthehistory and development of SRI and there are an increasing numberofalternativeinvestmentproductsthatincorporateESGcriteria.Attheoutsetof2012,alternativeinvestmentvehicles—privateequityandventurecapitalfunds,propertyandrealestateinvestmentfunds,andhedgefunds—incorporatingESGcriteriatotaled$132.3billion.Thisrepresentsgrowthofmorethan300percentcomparedwiththe2010estimateof$37.8billion.10 The US SIF Foundation study, Sustainability Trends in US Alternative Investments, foundthatresponsiblepropertyfundsattractedthelargestshareoftotalalternativeinvestments.

Responsible Property Investing: SustainableandresponsibleinvestorshavecontributedtothegrowthinResponsiblePropertyInvestment(RPI),understoodastheapplicationofESGanalysistoinvestmentinthebuiltenvironment.ThistrendisanaturaloutgrowthofSRIinterestinlong-termwealthcreation,asrealestateinvestmententailstangiblesocialandenvironmentalimpactsthatinvestorscanmeasure,andthoseimpactsarematerialtolong-termperformanceandriskassessment.Manyrealestatemanagersanddevelopersadoptspecificsustainabilityorcommunitydevelopmentstrategiestodifferentiatethemselvesinthemarketplace.Retailinvestors,inturn,canuseproperty-specificESGcriteriatoevaluatepubliclytradedrealestateinvestmenttrusts(REITS),whilelargeassetowners,suchasendowmentsandpensionfunds,canuseESGcriteriatochooserealestateadvisors.Despiteeconomicchallenges,thereisabroadertrendtowardenvironmentalsustainabilityinrealestate,withlargeREITSandrealestatemanagersaddingdedicatedstaffandprogramstoaddressenergyandresourceefficiency.Withthegrowingimportanceofenergyandresourceefficiency,RPImaygainprominenceintheglobalrealestateinvestmentindustryinthecomingyears.

Green Bonds:Thegrowthofgreenbonds,issuedtogeneratemoneytosupportenvironmentallysustainablebusinessventures,isanexampleoftheinvestmentoptions thathavearisenduetotheinterestandadvocacyofsustainableinvestors.TheClimate BondsInitiative(CBI),aninternationalnetworkandaprojectoftheCDP(mentionedin ChapterFour)andtheNetworkforSustainableFinancialMarkets,isattheforefrontoftrackingandadvocatingforthisgrowingmarket.TheCBIestimatesthatasofMarch2013,thetotalvalueoftheclimateorgreenbondsissuedisaround$346billion.11In2012,$74billionwasissuedinnewclimate-themedbonds,up25percentfrom2011.Twomajorsectorrecipientsofthefinancingarecarbon-efficienttransport,whichaccountsfor75percentofthetotal,andcleanenergyandclimatefinance.TheCBIlaunchedtheClimateBondStandard,designedtoprovideinvestorsandgovernmentswithindependentlycertifiedbondsthatprovideassurancethattheinvestmentsarecontributingtothedeliveryofalowcarboneconomy.

TheWorldBankdevelopedtriple-Acreditqualitygreenbondstoprovideopportunitiesto investinclimatechangesolutionsthoughafixedincomeproduct.GreenbondsalessupportWorldBankprojectstopromoteclimatechangemitigationandadaptationsolutions.Since thegreenbonds’inauguralissuein2008,theWorldBankhasissuedapproximately$3.5billioningreenbonds,throughfifty-eighttransactionsandseventeencurrencies.12 State Street

AT THE OUTSET OF 2012, ALTERNATIVE INVESTMENT

VEHICLES —PRIVATE EQUITY AND VENTURE CAPITAL FUNDS, PROPERTY AND

REAL ESTATE INVESTMENT FUNDS, AND HEDGE FUNDS—

INCORPORATING ESG CRITERIA TOTALED

$132.3 BILLION.


GlobalAdvisors(SSgA),theinvestmentmanagementbusinessofStateStreetCorporation,offersagreenbondstrategyforinvestorsseekingtodirectfixedincomeinvestmentsto climatesolutions.13

EmergenceofProgram,MissionandImpactInvestingInrecentyears,program-related,missionandimpactinvestinghavehelpedtoincreaseawarenessamongfoundations,otherinstitutionalinvestorsandhighnetworthindividualsof the social and environmental impacts associated with community investing and certain alternativeinvestmentstrategies.

Program-Related Investing: TheTaxReformActof1969enabledUSfoundationstomeettheirannualcharitabledistributionrequirementsinpartthroughprogram-relatedinvestments(PRIs)thatprovidebelow-marketreturns,butcomplementandextendtheirmoretraditionalgrantmaking.Whilegrantstendtofunctionlikecharitablecontributions,program-relatedinvestmentsprovidefoundationswithareturn,eitherthroughrepaymentorreturnonequity.FoundationsarethusabletorecyclePRIpaymentsforsubsequentcharitableinvestmentsandgrants,andtheycancountPRIstowardtheminimum5percentannualpayoutofnetassetsrequiredunderUStaxlaw.

PRIsarestilladevelopingtoolforfoundations.AccordingtoastudybytheIndianaUniversityLillyFamilySchoolofPhilanthropyanddatafromtheFoundationCenter,fewerthan1percentoffoundationsintheUnitedStatesmadePRIseachyearoverthepasttwodecades.14 The numberofPRIshasvariedinrecentyears:125in2007,78in2008,97in2009,and64in2010(datafor2010isincomplete.TheFordFoundationmadethelargestdollaramountofPRIsat$302million,whiletheBodnerFamilyFoundationmadethelargestnumberofinvestmentsat177.Asubstantialportionoffoundations’PRIsappearstobedirectedtocommunityinvestinginstitutions.Housing,communitydevelopment,andeducationaccountedfor

66.5percentofthenumberofPRIsandabout68percentofPRIdollarsbetween2000and2010.15Whilethetotalnumbersarestillsmalloverall,foundations’interestinprogram-relatedinvestingappearstobegrowing.Forexample,in2011,theBillandMelindaGatesFoundationexpandeditsprogram-relatedinvestmentinitiativefrom$400millionto$1billion.16

Mission-Related Investing: Foundationshavealsobecomeinvolvedinmission-relatedinvesting(MRI)inrecentyears,applyingESGcriteriatotheinvestmentoffoundationendowments.17Thistypeofinvestingprimarilyinvolvesmarketrateinvestmentsthatsupportprogramgoals.ArecentsurveyconductedbytheFoundationCenterfoundthat7percentofUSfoundationsmadeMRIsasofearly2011.18About26percentofthefoundationswithMRIssurveyedsaidtheycommittedover50percentoftheirassetstoMRIs,whileoverhalfsaidtheyhave5percentorlessoftheirassetsinMRIs.AlmosthalfstartedmakingMRIsinthelastfiveyears,comparedto10percentthathavemadethemformorethantwentyyears.

HOUSING, COMMUNITY DEVELOPMENT AND EDUCATION

ACCOUNTED FOR 66.5% OF THE NUMBER OF PROGRAM-RELATED

INVESTMENTS AND ABOUT 68% OF PRI DOLLARS

BETWEEN 2000 AND 2010.


Impact investing: Inthelastfewyears,numerousinstitutionshavebeguntousetheterm“impactinvesting”todescribetheactive,intentionalinvestmentofcapitalintovehiclesthatcreatesocialorenvironmentalbenefitsalongsidefinancialreturns.Althoughtheterminologyisnew,impactinvestinghasbeenpracticedfordecadesandoverlapssignificantlywithresponsibleinvestment,withparticularresonancewithdomesticandinternationalcommunityinvestment.Similarly,theriseofinvestmentinsectorslikecleantechnology,greenbuildingandmicrofinanceindicatesthatinvestorshaveanappetiteforprofitableinvestmentsthatalsoalleviatepovertyorreducecarbonemissions.

TheGlobalImpactInvestingNetwork(GIIN)wasconceivedinOctober2007,whentheRockefellerFoundationgatheredasmallgroupofinvestorstodiscussincreasingthescaleandeffectivenessofimpactinvesting.19Today,morethanfiftyassetownersandmanagers,includinglargefamilyoffices,diversifiedfinancialinstitutions,pensionfunds,specialized banks,targetedimpactinvestmentfunds,andprivatefoundations,areengagedinthe GIINInvestors’Council.20

Impact on InvestorsThedevelopmentofthesustainableinvestmentfieldhasallowedindividualinvestorstohaveawiderarrayofoptions,includingcompetitiveproductsandservices,whenmakingdecisionsaboutwheretoplaceinvestments.Thisistruewhethertheinvestorisamillionaireoranindividualwhoseinvestmentuniverseisconfinedtocontributionstoaretirementfund.Investorshavebenefitedbygainingaccesstomorepublicandprivateequityoptions,includingretirementplanswithSRIoptions,andalsotospecializedSRIfinancialadvisorsthatcanhelpthemdeviseinvestmentstrategiesforgoalssuchascollegeeducationandretirement.

AvailabilityofSRIOptionsandCompetitivePerformanceinRetirementPlansToday,moreandmoreAmericansrelyondefinedcontribution(DC)pensionplansfortheirretirement.Morepublicsectorandprivatesectoremployersareofferingretirementplanswithoneormultiplesustainableinvestingoptions.The2011USSIFFoundation/MercerreportOpportunities for Sustainable and Responsible Investing in US Defined Contribution Plans, foundthatthenumberofUS-basedDCretirementplansofferinganSRIchoicecoulddoubleinthenexttwotothreeyears.Fourteenpercentofthe421DCplansponsorsrespondingtothesurveyalreadyofferoneormoreSRIoptions,whileanadditional13percentofsurveyrespondents either are considering adding an SRI option or intend to do so in the next two to threeyears.Twentyyearsago,veryfewsustainableinvestmentopportunitiesexistedwithinindividualretirementplanoptions.Today,manypublicandprivatesectoremployeesareabletochoosea“triple-bottom-line”approachtotheirretirementassets.However,federalemployeeshavenosustainableandresponsibleinvestmentoptionsintheirretirementplan.Forseveralyears,USSIFhasbeenencouragingTheFederalRetirementThriftInvestmentBoardtoofferatleastoneSRIoptionintheFederalThriftSavingsPlan,thelargestretirementprogramintheUnitedStates.

Access to Experienced SRI Financial Advisors InthesamewaythatmillionsofAmericansaskquestionsaboutwhethertheircoffeeisfairtradeororganic,whatkindofsupplychainproducedtheirclothing,andthecarbonfootprintoftheirelectricitycompany,theyalsowanttoensurethattheirinvestmentportfoliosupportscompaniesworkingtoadvanceenvironmental,socialandgovernanceissues.Inotherwords,manyAmericansseeinvestingaspartoftheiroverallactivitytowardsbuildingamore


sustainableworld.Theseinvestorsnowhaveaccesstoexperiencedfinancialadvisorsandmoneymanagerswhohavein-depthknowledgeaboutinvestinginasustainablemannerandcanhelpclientsdefineandmeettheirinvestmentgoals.Manyadvisorswillalsoworkwiththeirclientstovotetheirproxies,aprocessthatallowsthemtoinfluencecompanyactions andpolicies,thusassistingtheirclientsinbecomingengagedinvestors.

Increased Product OptionsTheaverageAmericaninvestorwhowantshisorherinvestmentstoaddressenvironmental,socialandgovernanceissueshasmultipleproductoptions.Theinvestorcanfindmanyresources—suchaswebsites,studiesandacademicjournals—withinformationon sustainableinvesting.

IndividualinvestorsinterestedinSRInotonlyhavemutualfund,bondandstockportfolioproducts,butalsocommunityinvestmentoptions,suchasmakingcashdepositsincreditunionsandcommunitybanks,investmentsinloanfundsandinvehiclessuchasCommunityInvestmentNotesfromtheCalvertFoundation.Retailinvestors,aidedbyplatformssuchasMicroplace,canengageininternationalmicroenterpriselending.Highnetworthindividuals—andotheraccreditedinvestors—alsohaveoptionsforcommunity-relatedinvestmentsinprivateequityandotheralternativeinvestments.


Sustainableinvestorshaveengagedinshareholderadvocacyfordecades,usingactiveownershipandengagementstrategiestobringcriticalESGissuestotheattentionofcompanyseniormanagementandotherstakeholders.Suchengagementisfocusedondrivingpositivechangeincorporatepolicies,programsandperformance.Engagementismorecommoninpubliclytradedcompanies,butcanalsooccurinprivatelyheldcompanies,thoughtheoptionsaremorelimited.

Theimpactofshareholderadvocacyissignificantandgrowingsteadily.Between2010andthefirsthalfof2012,morethan200institutionalinvestorsandinvestmentmanagerscontrollingatleast$1.54trillioninassetsfiledorco-filedshareholderresolutionsonESGissues.Duringthesameperiod,therehasbeenanupwardtrendinvotesupportonsocialandenvironmentalissues,withatleast24percentoftheseresolutionsannuallyreceivingsupportfromatleast 30percentofthesharesvoted.Thesefiguresrepresentasignificantincreasefromthe2007–2009period,whenonly15to18percentofESGresolutionswonthesamelevelofsupport.

Investorsinpubliclytradedcompaniescanpursueanumberofresponsibleownershippracticestoencouragetheirportfoliocompaniestoimprovetheirpolicies,practicesandstrategicplanningwithregardtoESGissues,whetherornottheyuseESGcriteriatoselectthesecompaniesfortheirportfolios.

Publicly Traded CompaniesSustainableandresponsibleinvestorshaveusedtheirpositionasshareholdersinpubliclytradedcompaniestoencouragecorporateimprovements.Thetoolsthattheycanuseindividually or in concert with other investors and non-investor organizations include:

• Votingproxiesandfilingshareholderresolutions• Dialoguing with company executives• Conducting letter-writing and e-mail campaigns• Attendingandspeakingatannualshareholdermeetings• Publishingresearchreportsorindustryanalyses• Participatinginmulti-stakeholderdialogues

Activeownershipstrategiescancreateahaloeffect:investorsurgeafewcompaniestotakeactiononanissue,andothercompaniestakenoteandchoosetoadoptamoresustainablepolicyinordertoavoidbeingthetargetofsimilarshareholderaction.

Proxy Voting and Shareholder ResolutionsTheUSproxysystemisthemostdirectwayforinvestorsinUScompaniestoinfluencecorporatebehavior.Itisoftentheprincipalmeansforshareownersandcompaniestocommunicatewithoneanotherandforshareownerstoweighinonimportantissues.Eachyear,companiesseekvotesfromshareholdersonhundredsofitemspendingontheirannual

Improving Companies Through Active Ownership And Engagement


proxyballots,rangingfromtheapprovalofboardsofdirectorstoshareholderproposalsonESGissues.AccordingtotheUSSecuritiesandExchangeCommission(SEC),morethan 600billionsharesarevotedatmorethan13,000shareholdermeetingseveryyear.21 The SECrequiresinvestmentmanagerstodisclosetoclientstheirpoliciesforvotingproxies andtheirvotingrecords.Manysustainableandresponsibleinvestorsdisclosetheirproxyvotingguidelinesanddecisionsprominentlyontheirwebsites.Unfortunately,many investment managers and traditional mutual funds still fail to vote their clients’ proxies responsibly,choosinginsteadtovoteautomaticallyinlinewithcorporatemanagements’recommendedpositions.

Filingshareholderresolutionsisanimportanttoolforadvancingchangeatpubliclytradedcompanies.UnderSECrules,aproposalthatconsistentlygetsthesupportofatleast10percentofthesharesvotedcanbere-filedindefinitely,assumingitmeetstheoverallrequirementsforpropersubjectmatter.Investorsnowfileabout50percentmoreshareholderproposalsonESGissuesthantheydidadecadeago,withnearly400eachyear.22 As of February13,2013,investorshadfiledatotalof365shareholderresolutionsonenvironmental,socialandgovernanceissues.Intheenvironmentalandsocialarena,concernedshareholdershave focused particularly on improving disclosure and oversight of corporate political spending,environmentalpolicy−especiallywithregardtoclimatechange−and overallsustainability.

ThepercentageofvotessupportingshareholderresolutionsraisingconcernsonESGissueshasgrowninrecentyears.AccordingtotheProxyPreview2013report,thebiggestchangeinshareholderproposalresultshasbeenanincreaseintheiraveragesupportlevel,whichhasgrownfrom11.9percentin2003to18.5percentin2012.23 Resolutions on political spending madeupnearlyone-thirdofthefilingsin2012,afurtherincreasefromone-quarterin2011,andjustover40percentofallthevotes.24Whilevotesupportover50percentisstillrareforsocialandenvironmentalproposals,itisnolongeruncommonforsuchproposalstoreceivethesupportof30to40percentofthesharesvoted.

However,shareholderresolutionsdonotneedmajoritysupporttobeeffective.Insomecases, directorsheedtheconcernsraisedinadvisoryproposalsandfindwaystomakeimprovements,ordisclosemoreinformationtorespondtoinvestors,evenwhenvotesinfavorarebelow 50percent.25Shareholderresolutionsthatnevercometovotescanalsobeeffective.Themereprocessoffilingoftenpromptsproductivediscussionandagreementsbetweenthefilersandcorporatemanagement,andthatmayleadtothefilerswithdrawingtheirresolutions.Manycompaniesareopentonegotiatingwithshareholderproponents,eithertofindcommongroundonanissueortobeabletoagreetoremovepotentiallycontroversialitemsfromtheproxystatement.Inthelastfewyears,shareholderproponentshaveannuallywithdrawnmorethan100resolutionsonenvironmental,socialandgovernanceissues,usuallyafterobtainingconcessionsorcommitmentfrommanagementontheissuestheyhaveraised.26

Therearecountlessexamplesofimpactbyeffectiveshareownerengagement.Thefollowingarejustafewexamplestodemonstratehowconcernedinvestors,ofteninconcertwithotherorganizations,haveeffectedchangeinpubliclyheldcompanies.


Environmental IssuesClimateRiskSustainableandresponsibleinvestorshavepaidcloseattentiontocompanies’policiesandperformancewithregardtoclimatechangeissues.Concernedaboutthewarmingoftheatmosphereandthechangeinglobalaveragetemperaturesduetorisinggreenhousegasemissionsfromhumanactivity,theseinvestorshaveencouragedcompaniestoreducecarbonemissionsandtosetspecific,actionableclimatechangegoals.

Inrecentyears,investorpersistencehaspaidoffinincreasinglyhighvotesonclimate-relatedshareholderresolutionsandinnumerouscompanies’policychanges.In2009,forthefirsttime,ashareholderproposalrelatedtoclimatechangeriskwonmajoritysupport.AproposalfromTrilliumAssetManagementandAsYouSowFoundationrequestedthattheelectricutilityIdacorpsetgreenhousegasemissionreductiongoalsandwonthesupportof51percentofthesharesvoted.In2010,aproposalaskingMasseyEnergytoreportoncompanyplansto“significantlyreducethesocialandenvironmentalharmassociatedwithitsoperationscarbonemissions”won53percentvotesupport.TheannualmeetingtookplaceonlyweeksaftertheworstUScoal-miningdisasterindecadeskilledtwenty-nineworkersatMassey’sUpperBigBranchmineinWestVirginia.In2010,proponentswithdrewtwenty-oneproposalsonclimatechangeissues,oftenafterwinningspecificcommitmentsfromthetargetedcompanies.In2010,NewgroundSocialInvestmentwithdrewitsproposalatTJX,anapparelandhomefashionsretailer,whenthecompanyagreedtoproduceafullsustainabilityreportby2011,discloseitsclimaterisksandcreateaUSgreenteamwiththesolepurposeofimprovingthecompany’ssustainabilityperformance.TheagreementfollowedseveralyearsofdialoguebetweenTJXandinvestors.27

Inanotherdevelopment,in2005,afteralong-termdialoguewithsustainableinvestors,includingChristianBrothersInvestmentServices(CBIS),F&CAssetManagement,TrilliumAssetManagement,DominiSocialInvestmentsandothers,JPMorganChaseadoptedacomprehensive environmental policy that addresses globalwarming,illegallogging,protectionofhabitatsandtheconcernsofindigenouspeoples,andalsohireditsfirstDirectorofEnvironmentalAffairs.Similarly,afterproductivediscussionswithStrykerCorporation,WaldenAssetManagementreportedinitsQ12013Research

& Engagement Briefthatitwithdrewitsshareholderproposalseekingacomprehensivegreenhousegasemissionsmanagementplan.Strykercommittedtofullyassessitsfacilities,includingafutureintegrationofacquiredcompanies,andwillsettargetsandgoalsforcontrollingemissions.ThecompanyalsocommittedtorespondingtotheCDPin2013.Strykerisalargemedicaldevicesmanufacturerwithamarketcapofabout$24billion.ThecompanycompeteswithothermedicaldevicemakerslikeBostonScientific,MedtronicandJohnson&Johnson,whichalreadyhaverobustemissionmitigationprogramsinplace.

Overthepastthreeyears,230sustainability-focusedresolutionswerefiledbyinvestorsinthenetworkcoordinatedbyCeres,thenonprofitorganizationmobilizingcompaniesandinvestorsonclimatechangeandothersustainabilitychallenges.Nearlyhalfofthoseresolutionswerewithdrawnbyinvestorsafterthetargetedcompaniesagreedtoaddressissuesofconcern.In2011,consultingfirmDavidGardinerandAssociatesevaluatedtheeffectivenessofthose

INVESTOR PERSISTENCE HAS PAID OFF IN INCREASINGLY HIGH

VOTES ON CLIMATE-RELATED SHAREHOLDER RESOLUTIONS

AND IN NUMEROUS COMPANIES’ POLICY CHANGES.


withdrawalsandassessedcompanyfollow-throughonagreementsnegotiatedbyinvestorsbetween2007and2010.Findingsindicatedthatmorethan75percentofthe110withdrawalswerefullyorsubstantiallyimplemented.Inseveralcases,thewithdrawalagreementsresultedintangibleenvironmentalimprovements.

Water ConservationIn2012,WaldenAssetManagement’sengagementpromptedseveralcompanies,includingQualcomm,Sysco,andUnitedNaturalFoods,toconsiderusingwaterriskassessmentstoexaminethebusinessimpactofwaterscarcity.28

SustainableForestryPracticesSustainableandresponsibleinvestorshavehelpedtopersuadecompaniestoadoptmoresustainableandresponsibleforestrypracticesinordertoprotecttheworld’sendangeredforestareas,whichplayacriticalroleincurbingthepaceandextentofglobalclimatechange.Forexample,investorsworkedsuccessfullywithacoalitionofcivilsocietyorganizationsandenvironmentalactiviststohelppersuadeHomeDepot,theworld’slargesthomeimprovementretailerandoneoftheworld’slargestretailersofold-growthlumber,tophaseoutsalesofwoodproductsfromendangeredforestsin2002.Aspartofanewtimberpurchasingpolicy,HomeDepotagreedtogivepreferencetothesaleoftimbercertifiedandmanagedbytheForestStewardshipCouncil(FSC)whereverpossible,topromotewaystousewoodmoreefficiently,andtosupportalternativestowoodproducts.In2009,HomeDepotsoldmoreFSC-certifiedwoodthananycompanyinNorthAmerica.Companiesthatoffersustainableforestproductscanopendoorstonewmarketsandcustomers,asevidencedbythepreferenceofmanylargeforestproductretailers,suchasIKEAandtheLEEDbuildingindustry,tousetheseproducts.

Hydraulic FracturingSRI shareholders succeeded in persuading several companies to provide more information toshareholdersandthegeneralpublicabouttheirhydraulicfracturingoperations.Hydraulicfracturing—or“fracking”—isatechniqueusedindrillingfornaturalgas,inwhichchemicalsareinjectedathighpressureundergroundtobreakuprockandforcenaturalgastothesurface.Thereareconcernsthattheproceduremayharmwatersuppliesforlocalcommunities.

In2010,shareholderresolutionsatsixcompanieswonnotablyhighlevelsofsupportforafirst-yearcampaign,rangingfrom21percentto42percent.OneproposalthatreceivedsignificantsupportwasfiledbyGreenCenturyManagementwiththeWilliamsCompanies.Theproposalaskedthecompanytoreportontheenvironmentalimpactofitshydraulicfracturingoperationsandtodeveloppolicies,aboveandbeyondregulatoryrequirements,toreduceoreliminatehazardstoair,waterandsoilqualitycausedbyfracking.TheNewYorkStateCommonRetirementFunddecidedtowithdrawsimilarresolutionsithadfiledwithRangeResourcesandHesswhenthecompaniesagreedtodisclosethechemicalstheyuseinhydraulicfracturing.Miller/HowardInvestmentwithdrewahydraulicfracturingproposalatElPaso.

InDecember2011,theInvestorEnvironmentalHealthNetwork(IEHN),acoalitionofinvestorsandenvironmentalorganizations,andtheInterfaithCenteronCorporateResponsibility(ICCR)publishedaninvestorguideoutliningdisclosureexpectationsandrisksfromhydraulicfracturing.29Theinvestorguidehasbeensupportedby55majorinvestorsonthreecontinents(NorthAmerica,EuropeandAustralia)responsibleformorethan$1.3trillioninassetsundermanagement.Theguidecitesnumerousexamplesfromseventeencompaniesalreadyimplementingvariouspracticesandencourages“aracetothetop.”Theguidehasbeena


valuableresourceininvestordiscussionswithseveralcompanies,includingApacheandConocoPhillips.30 In early2011,SouthwesternEnergyandAnadarkoagreedtoimprovethequalityofinformationavailabletothepublicaboutfracking,includingthroughbetterwebsitedisclosure,aftertheyreceivedresolutionsonthesubject.SouthwesternEnergyalsoissuedapublicstatementsupportingahydraulicfracturingdisclosurebill.

Social IssuesGlobalSupplyChainandFactoryConditions

Overthepastfewdecades,muchofUSmanufacturingshiftedtothedevelopingworld,ascompaniesoutsourcedproductiontolocal,independentlyownedcontractorsorvendors.Conditionsatoverseasfactoriesvarytremendously.Manyofthesefactorieshaveunsafeworkingconditions,provideverylowwages,oruseforcedorchildlabor.Sustainableandresponsibleinvestorshavebeenattheforefrontofnumerouseffortstocollaboratewith multi-stakeholdergroupstoimprovetheworkingconditionsinglobalsupplychainsofconsumerproducts.Therehavebeenseveralsuccesses.

Companiesintheconsumergoodssector,whichincludesapparel,footwear,andtoyindustries,wereamongthefirsttofacepubliccontroversyoverpoorlaborpracticesinsupplierfactories.Inthe1990s,twoofAmerica’slargestandmostsuccessfulclothingretailers,NikeandGap,becamethetargetsofmassivepubliccriticismforsweatshopandotherpoorworkingconditionsattheirsupplierfactories.Followinginvestorpressure,bothcompaniesrespondedbymorecloselymonitoringsupplierlaborpracticesandreportingontheirfindings.

Forexample,manyinvestors,includingmembersofthePublicReportingWorkingGroupformedin2002(DominiSocialInvestments,CalvertInvestments,AsYouSow,CenterforReflection,EducationandAction,andInterfaithCenteronCorporateResponsibility)workedwithGaptoimproveconditionsinthecompany’smorethan300factories.Resultingstate-of-the-artvendorstandardsreports,publishedin2004and2005,documentedthecompany’sprogressandincludedconcretedataoncomplianceandremediationefforts.Gap’sstakeholderengagementstrategy,whichincludedinvestors,transformedthewayGapapproachedethicaltradingproblems.Today,Gaphasasocialandenvironmentalresponsibilitydepartmentwithapproximatelyseventyfull-timestaffdedicatedtotheseissues.Thisdepartmentpartnerswithhundredsoffactoryownersandmanagers,NGOs,andindustryassociationsworldwide.GapisalsoafoundingmemberoftheBetterWorkprogram,sponsoredbytheInternationalLaborOrganization(ILO)andtheInternationalFinanceCorporation.BetterWorkseekstohelpgovernments,workers,andcompaniesachievecompliancewithnationallaborlawsandtheILO’scorelaborstandards.Asaresultofinvestorengagement,theparadigmhasshiftedandmanycompaniesaretakingconcretestepstodevelopvendorcodesofconduct,monitorsupplierfactories,andpublishreportsdisclosingkeydataabouttheirsupplychains.

IN 2010, SHAREHOLDER RESOLUTIONS REGARDING

HYDRAULIC FRACTURING— OR “FRACKING” —AT SIX

COMPANIES WON NOTABLY HIGH LEVELS OF SUPPORT FOR

A FIRST-YEAR CAMPAIGN, RANGING FROM 21% TO 42%.


Indigenous Peoples’ Rights Formorethanadecade,investorshaveadvocatedfortherightsofindigenouspeoples,including the elimination of negative portrayals and insensitive stereotyping of indigenous peopleandtheirculturalheritage.Accordingtoa2008reportbyFirstPeoples’Worldwide,morethan50corporations,mostlyUS.butincreasinglyCanadianandacoupleofnon-NorthAmerican,havebeenengagedthroughthefilingofshareholderproposalsandcompanydialogues,especiallywithresourceextractioncompanies.31

Forexample,aftershareholderengagementandaresolutionfiledin2007byChristianBrothersInvestmentServices(CBIS)andothermembersofInterfaithCenteronCorporateResponsibility(ICCR),NewmontMining,thesecondlargestproducerofgoldintheworld,wascommendedbyCBISin2009foritscommitmenttounderstandtherootcausesofcommunityconflictinitsminingoperations.Investorsapplaudedthecompanyforthereleaseofareportthat included an extensive review of policies and practices relating to its relationships with localcommunities,includingindigenouspeoples.Thefindingsfromthereport,“Community Relationships Review Global Summary Report,”writtenbythelawfirmofFoleyHoag,revealedthatthecompanymustmanagecommunityrelationshipsmoreeffectivelyandencouragedthedevelopmentofacomprehensivemanagementplanforcommunityrelations,assigningaccountabilitytolocalmanagersforimplementingpolicies,conductingregularsocialimpactandriskassessments,andmanagingcommunityconcernsbeforeconflictarises.32

In2011,followingmorethaneightyearsofdeliberativeandconstructiveengagementledbyBostonCommonAssetManagementandtheChurchoftheBrethrenBenefitTrust,themulti-billiondollaroilcompanyConocoPhillipsfinallyreviseditsHumanRightsPositionstatementtoincludeIndigenousPeoples’rights.33Theseinvestorsdemandedthatthecompanybetransparent in implementing its new policy and include grievance mechanisms for indigenous communitiesaffectedbyitsoperations.ConocoPhillips’HumanRightsPositionnowstatesthatthecompany’sapproachtolocalindigenouscommunities“…isconsistentwiththeprinciplesoftheInternationalLabourOrganizationConvention169,concerningIndigenousandTribalPeoples,andtheUnitedNationsDeclarationontheRightsofIndigenousPeoples.”ConocoPhillipsisoneofthefirstenergycompaniestoadoptsuchacommitment.34

Investorshavealsobeenseekingtoremovenegativeandoffensiveimagesand/orportrayalsofindigenouspeoples,especiallyinadvertisingandbranding.Forexample,investorswereconcernedaboutappareldesignerLizClaiborne’suseoftheCrazyHorsenametomarketalineofclothing.CrazyHorseisthenameofoneoftheLakotatribe’smostrespectedleaders.Shareholders,alongwiththeNativeAmericancommunity,arguedthatLizClaibornehadmisappropriated and desecrated the name and legacy of a revered spiritual and political leader byusingitasacommodity.In2002,CalvertInvestmentsfiledashareholderresolutionwithLizClaiborne.Forseveralyearsbeforethefiling,ICCRmembershadalsoengagedLizClaiborneoverthecompany’smarketingoftheCrazyHorsebrand.Over800institutionalinvestorssignedontoaletteraskingLizClaibornetoceaseitsuseofthename.Despitethemountingpressure,LizClaibornerefusedtorelent,offeringonlytoalterthenametoalllowercaseletters,andtomake“horse”plural.CalverteventuallysolditssharesinLizClaiborneinoppositionofthecompany’sstance.In2007,LizClaibornediscontinuedtheCrazyHorselabel.


Freedom of Expression and PrivacyCompanies around the world face government pressure to comply with domestic laws andpoliciesoncensorshipanddisclosureofpersonalinformationthatmayconflictwithinternationallyrecognizedhumanrightsoffreedomofexpressionandprivacy.Investorshavelongengagedthesecompaniestoprotectandadvancehumanrights.In2008,adiversecoalition,includinginvestors(BostonCommonAssetManagement,CalvertInvestments,DominiSocialInvestments,F&CInvestments,andTrilliumAssetManagement),prominenthumanrightsorganizations,pressfreedomgroups,academics,andleadinginformationandcommunicationcompanies(Google,Microsoft,andYahoo)launchedtheGlobalNetworkInitiative(GNI).TheGNIhasdevelopedasetofprinciplesandimplementationguidelinestohelpcompaniesnavigatethesedifficultissuesconsistentwithinternationalhumanrightslaw.Shareholderresolutionshavealsomadeadifferenceonprivacyissues.InDecember2012,inresponsetoTrilliumAssetManagement’sshareholderproposalregardingprivacyissues,AppleInc.updateditsBoard’sAuditandFinanceCommitteechartertoincluderesponsibilitiesforthelegal,regulatory,andreputationalprivacyriskissuesraisedintheresolution.35 Investors viewtheinclusionofprivacyriskissuesinthecharterasanimportantstepinimprovingaccountabilityatthehighestlevelsofcorporategovernance.”

Governance IssuesEqualEmploymentOpportunity(EEO)TheefforttoadvancesexualorientationnondiscriminationpolicieshasbeenoneofthemostsuccessfullysustainedshareholdercampaignsintheUnitedStates.Sincethemid-1990s,morethan200resolutionshavebeenfiledtoadvancesexualorientationnondiscriminationpolicies,with150withdrawnsuccessfullyupontheadditionof“sexualorientation”and/or“genderidentity”’tothecompany’snondiscriminationpolicy.36 A watershed moment occurred in2002,whensucharesolution,filedbytheNewYorkCitypensionfundsatCBRLGroup,theparentcompanyofCrackerBarrelOldCountryStores,wonthesupportof 58percentofthesharesvoted.Thiswasthefirstevermajorityvoteinfavorofasocialissuesresolutionopposedbymanagement.Intheyearssince,similarresolutions—whentheyhavecometovotes—haveachievedhighlevels

ofsupport.In2012,sevenoffifteencompaniesapproachedbyWaldenAssetManagementagreedtomodifytheirEEOpoliciestoincludesexualorientationandgenderidentity.37

“SayonPay”Sustainableandresponsibleinvestors,includingpublicpensionfunds,laborfundsandSRIfirms,haveworkedtoreformthegovernanceofportfoliocompaniessothatdirectorsand executives consider and adopt compensation policies in the long-term interest of the companies,theirshareholdersandotherstakeholders.Toofrequently,executiveshavelittleincentive—intheirpayandbonusstructures—toconsiderthecompany’ssharepriceandotherindicatorsofcorporatehealthbeyondaone-tothree-yearhorizon.

AccordingtoUSSIFFoundation’s2012Report on Sustainable and Responsible Investing Trends in the United States,shareownerengagement,combinedwithregulatorychanges,are

SINCE THE MID-1990S, MORE THAN 200 RESOLUTIONS

HAVE BEEN FILED TO ADVANCE SEXUAL ORIENTATION

NON-DISCRIMINATION POLICIES, WITH 150 WITHDRAWN

SUCCESSFULLY UPON THE ADDITION OF SEXUAL

ORIENTATION AND/OR GENDER IDENTITY TO THE COMPANY’S

NON-DISCRIMINATION POLICY.


allowingshareholdersgreaterscrutinyandinfluenceoverexecutivepaypackages.In2006,acoalitionofinstitutionalandindividualinvestorsthateventuallynumbered75investorswithcombinedassetsofmorethan$1trillion,joinedforcestourgecompaniestoadoptanadvisoryvoteonexecutivecompensation.Thispractice,alsoknownas“sayonpay”iscommoninBritishcorporategovernanceandreferstoanofficialchannelforshareholderstoexpresstheirconcernstocorporateboardswhenhugepaypackagesseemunrelatedtothecompanies’long-termperformance.TheshareholdercampaignreceivedaboostwhentheSECrequiredthatcorporateproxystatements,beginningin2007,providefulldisclosureofthedetailsandtotalvalueofcompensationpackages.Shareholderresolutionsaskingcompaniestoinstituteanadvisoryvoteearnedaveragesupportofmorethan40percentfrom

2008through2010and,bymid-2010,hadhelpedpersuadeabout75companiestovoluntarilyimplementanadvisoryvoteonpay.

Shareholderadvocatesconcernedwiththisissuecanpointtosolidachievements.By mid-2010,approximatelyseventy-fivecompanieshadvoluntarilyagreedtoimplementanadvisoryvoteonpay.TheenactmentinJuly2010oftheDodd-FrankWallStreetFinancialReformandConsumerProtectionAct,discussedmorefullyinChapterFour,hassincemade itmandatoryforpubliclytradedcompaniestoallowanadvisoryvoteonpayatleasteverythreeyears.

The current challenge for shareholders is to use the advisory vote on pay to hold management accountable,andforboardstoensurethattheexecutivecompensationpoliciestheycraftaredefensibleandalignexecutives’incentiveswiththeircompanies’long-termfinancialhealth.Asmallnumberofshareholdershaveseizedtheinitiativetoshowtheywillnotnecessarilyrubber-stampthepaypoliciespresentedtothem.In2010,shareholdersvotedamajorityof their shares against three of the sixty companies where they had a chance to weigh in on executivepayasthenewrulewentintoeffect.Thesethumbs-downvotescameatKeyCorp,MotorolaandOccidentalPetroleum.

Althoughonlyarelativelylowpercentageofcompanieshavefailedtheiradvisoryvotes,thereisanecdotalevidencethatmanycompaniesconsiderthethreatoffailureasamajorincentivetoensuretheirpaypackagesaredefensible.AWallStreetJournalanalysisfoundthat25percentoftheCEOsofthecompaniesthatfailedtheiradvisoryvotesin2011hadleftbythe2012meeting,aturnoverratenearlythreetimesgreaterthanamongcorporateCEOsingeneral.38

BoardDiversitySustainableandresponsibleinvestorshavelongpressedcompaniestoseekracialandgenderdiversityontheirboards.Theseinvestorsapplytherationalesthatboardsshouldideallyreflectoursociety’smake-up,andthatconsiderableevidenceindicatesthatcompaniesthatintegrategender,racial,andethnicdiversityintotheirbusinessmodelsarelikelytobemoresuccessfulthantheircompetitors.WhileratesofboarddiversityintheUnitedStateshavemadeonlyslowprogressoverthepastdecade,investorshavepersuadednumerouscompaniestobroadentheirboardsearchcriteria.

SHAREHOLDER RESOLUTIONS ASKING COMPANIES TO

INSTITUTE AN ADVISORY VOTE ON COMPENSATION EARNED AVERAGE SUPPORT OF MORE

THAN 40% FROM 2008 THROUGH 2010 AND, BY MID-2010, HAD

HELPED PERSUADE ABOUT 75 COMPANIES TO VOLUNTARILY

IMPLEMENT AN ADVISORY VOTE ON PAY.


In2003,CalvertInvestmentsdevelopedmodelnominatingcommitteecharterlanguageforcorporateboards.Thismodellanguageaimedtogivecompaniesameanstoformalizetheircommitmenttocreatinganindependentandinclusiveboard.Typically,investorsareabletowithdrawtheresolutionswhentargetcompaniesagreetomodifytheirnominatingcommitteecharterlanguagebyexplicitlyestablishingracialandgenderdiversityasapriority.Shareholderadvocatesforboarddiversityreceivedaboostin2010withanewSECrulerequiringcompaniestoreportontheirboarddiversitypolicies.Forexample,CalvertandtheConnecticutRetirementPlansandTrustFundswereparticularlypleasedwhenNetflix,withwhomtheyhadnegotiatedtheexpandedcharterlanguage,nameditsfirstwoman

directorinJuly2010.In2011and2012,theCaliforniaStateTeachersRetirementSystembecameanactiveproponentonthisissue,filingtenresolutionsin2011and2012.In2012,theThirtyPercentCoalition,agroupofinstitutionalinvestorscontrollingapproximately$1.2trillioninassets,petitionedforty-oneS&P500companiestoincludewomenintheirboardsofdirectors.ThegroupaimstoincreasethepercentageofboardseatsheldbywomeninUScompaniesto30percentby2015.

Somesustainableandresponsibleinvestorsalsourgeother investors to withhold support from corporate proxy slateswhereboardslackgenderandracialdiversity.

CorporateSocialResponsibility(CSR)ReportsInrecentyears,numerousshareholdergroupshaveaskedfirmstoreviewandreportonthesustainabilityoftheiroperations,notonlyintermsoftheirenvironmentalimpact,butalsoinhowtheydealwithlaborandcommunityissues.SincetheSECdoesnotrequiresustainabilityreportingbypubliclytradedcompanies

intheUnitedStates,voluntaryreportingisoftentheonlywaythatinvestorsandotherstakeholderscanmonitorcompaniesforissuesofconcern.Comprehensivesustainabilityreports,issuedonaregularbasis,providevaluableinformationthatallowsinvestorstoevaluatecompanies’environmental,social,andgovernancerisksandopportunities.Additionally,thereportingprocessfrequentlyhasatransformativeimpactoncompanies,astheybegintomeasureandcomprehensivelymanagerisksandotheropportunities,includingenergyandwateruse,wastemanagement,emergingsupplychainrisksandotherstakeholderconcerns.Today,fewcompaniescanignoresustainabilityreportingwhilealsoattracting−ormaintaining−sustainableandresponsibleinvestors.

Shareholdershavegivenstrongsupporttoproposalsaskingcompaniestoreportonsustainability;theseproposalsaveragedsupportofmorethan30percentannuallyin 2010–2012.39AshareholderproposalfiledbyWaldenAssetManagementatLayneChristensonreceivedarecord92.8percentsupportin2011.40 These high support levels mayhelptopersuadecompaniestoincreasetheirdisclosure.Proponentswithdrewthemajorityofthesustainabilityreportingproposalstheyfiledfrom2010through2012,usuallyaftersuccessfulnegotiationswiththetargetcompanies.

Today,thenumberofCSRreportsissuedbycompaniesisincreasing,asisthequalityofthose

SHAREHOLDERS HAVE GIVEN STRONG SUPPORT TO PROPOSALS

ASKING COMPANIES TO REPORT ON SUSTAINABILITY; THESE

PROPOSALS AVERAGED SUPPORT OF MORE THAN 30% ANNUALLY IN

2010–2012. PROPONENTS WITHDREW THE MAJORITY OF SUSTAINABILITY REPORTING PROPOSALS THEY FILED FROM

2010–2012, USUALLY AFTER SUCCESSFUL NEGOTIATIONS WITH

THE TARGET COMPANIES.


reports.A2011reportbyKPMGindicatesthat95percentoftheGlobalFortune250companiesdisclosedtheirCSRdata.Eighty-threepercentofUS-basedcompaniesinthisgroupengagedinCSRreporting.Thisfigurerepresentedanincreasefrom74percentin2010and37percent in2005.41

Corporate Political SpendingSinceJanuary2010,whentheSupremeCourt’sdecisionin Citizens United v. Federal Election Commission removed restrictionsonpoliticaladvertisingandspendingbycorporationsandotherorganizations,concernedinvestorshavebeencallingfordisclosureofpolicies,oversightmechanisms,andadetailedlistingofpoliticalspendingandlobbyingexpenditures.Suchtransparencyhelpsmanagementandinvestorsbetterevaluatebusinessrisk

associatedwitheffortstoinfluenceregulatoryandlegislativeprocesses.AsshownbythenumberofshareholderproposalsfiledeachyearinUSSIF’s2012TrendsReport,disclosureandmanagementofcorporatepoliticalspendingandlobbyinghasemergedasthegreatestsingleconcernofshareholdersandnowdominatesthesocialissuesproxyseason.Thenumberofresolutionsfiledonthissubjectrosetomorethan100ayearin2011and2012, upfromanannualaverageofabout60in2007through2010,withaveragevotesupportofmorethan21percentin2012.42

ThecampaignonpoliticalspendinghasbeenledbytheCenterforPoliticalAccountability(CPA)withthesupportofaninvestorcoalitionthatincludespensionfunds,laborunions,environmentalgroupsandsustainableinvestmentmanagers.Sincethestartofthiscampaignin2004,theCPAanditsallieshavepersuaded100largecompanies,includingmorethanhalftheS&P100,todiscloseandrequireboardoversightoftheirpoliticalspendingwithcorporatefunds.Thecampaign’seffectivenesshasbeenaidedbystronginvestorsupport,includingbymanymembersofUSSIF.Inthe2012season,proponentswereabletowithdrawmorethantwodozenproposalsinexchangeforsubstantivecommitmentsfromthetargetcompanies.TrilliumAssetManagement,forexample,announcedthatitwasabletowithdrawresolutionsatChubb,StateStreetandHalliburton.

Inadditiontoaskingfordisclosureofcorporatepoliticalcontributions,sustainableinvestorsfiledresolutionswith40companiesin2011and2012specificallyaskingfordisclosureoflobbyingexpendituresmadebothdirectlyaswellasindirectlythroughtradeassociationssuchastheUSChamberofCommerceandnotfor-profitssuchastheAmericanLegislativeExchangeCouncil(ALEC)andtheHeartlandInstitute.Manycompanieshadrespondedpositivelyby2013.Forexample,PepsiCoagreedtodisclosedirectlobbyingandcontributionsmadetotradeassociations,43aswellasfundspaidtograssrootslobbyingandtaxexemptgroupsthatwriteandendorsemodellegislation.WaldenAssetManagementwithdrewitsresolutionat3Mafterwinningthecompany’scommitmenttodiscloselobbyingactivitiesandexpenditurestotradeassociations.AfterdiscussionswithDominiSocialInvestments,JPMorganChasecompletedaseriesofimportantchangestoitspoliticalspendingpolicies,effectivelywithdrawingfromelectoralpolitics.Thebank’snewpoliciesprohibittheuseofcorporatetreasuryfundsforanyelectoralactivities—directlyorindirectly(throughtradeassociations,forexample)—includingpoliticaladvertising.Asaresultofthesesignificant

THE NUMBER OF RESOLUTIONS FILED ON CORPORATE POLITICAL SPENDING ROSE TO MORE THAN 100 A YEAR IN 2011 AND 2012, UP FROM AN ANNUAL AVERAGE

OF ABOUT 60 IN 2007 THROUGH 2010, AS SHAREHOLDERS REACTED TO THE CITIZENS

UNITED DECISION REMOVING RESTRICTIONS ON CORPORATE

POLITICAL ADVERTISING AND SPENDING.


policycommitments,Dominiwithdrewitsshareholderproposal.44 In response to shareholder engagement,Accentureadoptedanewpolicythatprohibitspoliticalspendingwithcorporatefunds.CompaniessuchasJohnson&Johnson,MicrosoftandProcter&Gambleadoptedpoliciestoincreasetransparencyintheirpoliticalspendingreports.Inaddition,Johnson&Johnson,Procter&GambleandMcDonald’sendedtheirinvolvementwithALEC,andPfizerendeditsinvolvementwiththeHeartlandInstitute.45

Privately Held Companies Shareownerengagementisnotlimitedtopubliclyheldsecurities.Privateequityinvestmentmanagersoftenhaveacloserelationshipwith—anddirectaccessto—companymanagement.Asaresult,thereisgreatopportunitytoengage,influenceandshapetheirportfoliocompanies’policiesandperformanceonESGissues.Dependingonthestrategy,privateequityinvestmentmanagersoftenholdinvestmentsforseveralyears—atimeperiodthatallowsforactionstoaddvalueonenvironmental,socialandgovernanceissues,suchasenergyefficiency,carbonreductionandworkplacehealthandsafetyprograms.InadditiontoSRImoneymanagers,prominentprivateequityfirmssuchasKKR,TheBlackstoneGroup,TheCarlyleGroupandothersareraisingquestionsaboutESGintegrationwithcompanymanagement.Thissectionaddressessomevaluablecasestudiesofprivatelyheldcompanyapproachestosustainabilityandresponsibility.

LeviStrauss:LaborandHumanRightsIssuesintheGlobalSupplyChainOvertheyears,investorsinLeviStrauss&Co.46havecollaboratedwithothergroupstoengagethecompanyonavarietyofissues,focusingonsupplychaintransparency,particularlyrelatedtolaborandhumanrightsconditionsatoverseasfactories.Twentyyearsago,LeviStraussissueditsfirstTermsofEngagementtobringitsglobalsuppliersinlinewithitspoliciesonlabor,healthandsafetyandenvironmentalimpact.In2008,afterreceivinginquiriesfromarangeofstakeholders,includingsustainableandresponsibleinvestors,abouttheforcedchildlaborintheUzbekcottonharvest,thecompanytookaction.LeviStraussinformedallofitstextilesuppliersandlicenseesthat,untilitsawclearevidenceofactiontoeliminatetheuseofforcedchildlabor,itwouldprohibitUzbekcottonintheproductionofthecompany’sbrandedproducts.Withthismove,LeviStraussbecamethefirstUSapparelbrandorretailertoprohibittheuseofUzbekcottoninitssupplychain.InSeptember2011,LeviStrausswasamongmorethansixtyoftheworld’sbestknownapparelcompaniesandbrandstosignapledgecallingfortheeliminationofforcedchildlaborinUzbekistan.

TXU Energy: Environmental PerformanceIncreasingly,buyoutfirmsarerealizingthebenefitsofgoodenvironmentalandgovernanceperformance.In2006,environmental,communityandothercivilsocietyorganizations,alongwithsustainableandresponsibleinvestors,wereconcernedwhenutilitycompanyTXUEnergy,Texas’slargestpowerproducer,announcedplanstobuildelevencoal-firedplants.Anumberoflawsuitsandcommunityprotestsresulted.WhenKKR&Co.,TPGCapitalandGoldmanSachsbeganconsideringaleveragedbuyout(LBO)oftheutility,theyunderstoodthattheyhadtogetthesupportofenvironmentalistsandtheyactivelyconsultedenvironmentalgroups.TXU’snewownersdecidedtobuildjustthreeplants,ratherthantheinitiallyplannedeleven.TheownersalsoagreedtocutTXU’scarbonemissionsto1990levelsby2020,spend$400milliononenergyefficiencyefforts,andtieexecutivepaytoenvironmentalgoals.The$45billionLBOwasannouncedfourdayslater.47


NorthernPulpandBlueWolfCapital:Community,IndigenousPeoples’Rights,EnvironmentalandWorkplaceIssuesBlueWolfCapital,aprivateequityfundfoundedin2005,considersresponsibleinvestingtobethecoreofitsbusinessstrategy.ImprovingresourceefficiencyandresolvingemployeeandcommunitystakeholderconcernsarecentraltoBlueWolf’sportfoliocompanyturnarounds.ThecaseofportfoliocompanyNorthernPulp,apulpandpapermillinAbercrombiePoint,NovaScotia,providesaninstructiveexampleofBlueWolf’sinvestmentstrategyandESGapproachatwork.WhenBlueWolfacquiredthemillin2008,NorthernPulphadhighoperationalcostsandacontentiousrelationshipwiththeneighboringFirstNationscommunity,thePictouLandingBand,duetolongstandingenvironmentalproblems.EarlyinBlueWolf’sownership,NorthernPulpnegotiatedwiththeCommunications,EnergyandPaperworkersUnionofCanada,whichrepresentedthemajorityofthemill’s300employees,tofindawaytopreservethecompany’sfinancialviabilitywhilemaintainingfairnesstoworkers.Ultimately,NorthernPulpimplementedanearlyretirementplanthateliminatedsixtypermanentpositions,amovethatloweredNorthernPulp’slaborcostswhileavoidingwiderlayoffs.

DuringBlueWolf’sownership,NorthernPulpworkedwithregulatorstodecreasethemill’senvironmentalfootprint.Thecompany’sengineerswereabletoreducethewaterareaused bythemill’seffluenttreatmentfacilitiesby80percent.NorthernPulpalsoobtaineda $15milliongovernmentloantoreplacealong-damagedpipelinetothetreatmentplant. Whiletheremediationofthewaterssurroundingtheplantisongoing,thePictouLandingBandchiefnowregardsNorthernPulpasan“ally”intheenvironmentalrestorationeffort.ThegoodwillgeneratedbytheseadvanceshelpedNorthernPulpsecurea$75millionloanfromtheprovincialgovernmentin2010.Thecompanyusedtheloantopurchase475,000acresoftimberland,providingareliablesourceofwoodwithSustainableForestryInitiativecertificationforthemill.Atthesametime,thefirmsold55,000acrestotheProvinceofNovaScotiaforenvironmentalconservation.Theloanalsohelpedfinancea$5millionodorreductionfacilityforthemill,tofurtherreduceharmfulenvironmentalimpactsandimproverelationswiththePictouLandingBandandthesurroundingcommunities.AfterstrengtheningenvironmentalstandardsandstabilizingstakeholderrelationshipsatNorthernPulp,BlueWolfanditsco-investor,AtlasHoldings,exitedtheirinvestmentinMay2011.Withsupportfromtheworkers’union,NorthernPulpwassoldtoPaperExcellenceCanada,aVancouver-basedsubsidiaryofSinarMasGroup.

Synagro:CommunityHealthandEnvironmentJusticeIn2006,MercyInvestment,alongwithtwoagenciesintheSouthBronx,MercyCenterandSustainableSouthBronx(SSB),purchasedstockinSynagro,theparentofNewYorkOrganicFertilizerCompany,asolidwasteprocessingplantintheHuntsPointsectionoftheBronx,shortlybeforeitwaspurchasedbytheCarlyleGroupandtakenprivate.Mercy,alongwiththeInterfaithCenteronCorporateResponsibility(ICCR),filedashareholderresolutionwithSynagroaskingthecompanytoengagewiththecommunityandproduceafacilitiesreportontheenvironmental,healthandsafetyimpactsofitsoperations.InvestorsweredeeplyconcernedabouttheimpactoftheSynagrofacilityonthehealthoftheresidentsatHuntsPoint,aonesquaremilepeninsulaintheSouthBronxthatisoneofthepoorestcongressionaldistrictsintheUnitedStatesandhasamongthehighestincidenceofchildhoodasthma.Thiscommunitybearsheavyenvironmentalburdensfromlocalindustrialandcommercialfacilities,andresidentscomplainaboutnoxiousodorsemanatingfromtheplantontotheirpublicschoolandneighborhood.48Afterinvestorsfiledaresolutionthatreceived31percentvotesupport,


thecompanyagreedtoengagewiththeinvestors,publicofficials,thelocalcommunityboard,teachersandorganizationsofyouth,mothersandenvironmentalists.Ultimately,thecompanyagreedtoimproveplantoperations.Whileallproblemswerenotresolved,positivechangeshavebeenmadeattheplant.49


Sustainableandresponsibleinvestmentbenefitsindividualsandcommunitiesinanumberofways.Throughactiveownershipandengagementwithcorporations,asdiscussedinChapterTwo,sustainableandresponsibleinvestorshavehelpedtobringbenefitstocommunitiesandindividualsimpactedbythesecorporations.Inthischapter,twodifferentstrategiesarediscussedthroughwhichsustainableandresponsibleinvestorscanbenefitcommunitiesandindividuals:throughcollaborationwithcommunityandworkerorganizations,andthroughcommunityinvesting.

Collaborating with Community and Worker OrganizationsInvestorscaninfluencecompaniesandholdthemtoaccountforthelaborandhumanrightsviolations,environmentaldegradation,andothernegativeimpactsthatcommunitiesmightexperienceduetocompanyoperations.Thefollowingexamplehighlightshowgroupsofinvestorswereabletosuccessfullyinfluencechangesincorporatebehaviorandaccountabilityincollaborationwithothergroupsinthecommunity.

Tomato Harvesters in FloridaIn2001,sustainableandresponsibleinvestorsbecameawareoftheplightofthousandsoftomatoharvestersinImmokalee,Florida,aftercommunity-basedworkerorganizationslaunchedaboycottagainstfast-foodchainTacoBell.ThroughtheCoalitionofImmokaleeWorkers(CIW),organizedin1993,theworkersaskedgrowerstoincreasewagesbyonecentperpickedpound.Theworkersalsodemandedathird-partymechanismformonitoringworkers’complaintsofabuse.Farmworkerstypicallyearnlessthan$12,000annuallyandlackrightstoovertimepay,association,andcollectivebargaining.Toaddressthesechallenges,investorsjoinedcivilsocietycoalitionstourgecompaniesthatpurchasetomatoestoensuresafe,healthyworkingconditionsandasustainablelivingwageforthetomatoharvesters.Afteryearsofengagement,majorbuyersreachedagreementswithworkerorganizationsthatprovideforbetterworkingconditions.OnMarch8,2005,TacoBellsignedanagreementwithCIW.OnApril9,2007,McDonaldsfollowedsuit,alsosigninganagreementwithCIW.BurgerKingandSubwaysignedagreementsin2008,and,in2009,WholeFoodsMarketsignedasimilaragreement.Additionally,CIWandtheFloridaTomatoGrowersExchange,atradeassociation,developedacodeofconductthatimprovedwagesandincreasedworkplaceprotections,byincludingminimum-wageguaranteesandazero-tolerancepolicyonforcedandchildlabor.

Community InvestmentSustainableandresponsibleinvestorshavealsotransformedcommunitiesacrosstheUnitedStatesandoverseasthroughtheirsupportofcommunityinvesting,oneofthefastestgrowingareasofSRI.Whileawiderangeofinvestmentvehiclesfallunderthebannerofcommunityinvesting,theyallsharethreecharacteristics:

Helping Communities and Individuals


1) Afocusonmarginalizedareasorcommunitiesthatconventionalmarketactivitydoesnotreach(inpractice,low-incomeneighborhoodsorregions,communitiesofcolor,andunderservedgeographicregionssuchasruralcommunities);

2) Afocusonenablingthedeliveryofexplicitsocialbenefits(affordablehousing,economicdevelopment,provisionofneededgoodsandservicesataffordablerates,healthieroutcomes)tothoseareasorcommunities;and

3) Afinancialproductavailableforinvestmentthatcanbemanagedintermsofrisk andreturn.

Communityinvestmentvehiclescanrange,forexample,fromconcessionaryloansandequityinvestmentsinnonprofitcommunitygroupstomarket-rateinvestmentsinfor-profitrealestatedevelopment.InvestorsandlenderstypicallyhaveengagedincommunityinvestingthroughCommunityDevelopmentFinanceInstitutions(CDFIs)andothercommunityinvestinginstitutions(CIIs).

CIIsfallintofourmajorcategories(pleaseseeUSSIF’s2012 Trends Reportfordetails):• communitydevelopmentbanks• community development credit unions • communitydevelopmentloanfundsandinternationalmicrofinancefunds• community development venture capital funds

Investorscanplacecapitaldirectlyintoanyoneofthefouroptionsabove,ortheymayinvestinpooledfundsorspecializedcommunityinvestmentportfolios.AnimportantsourceoffundingistheCDFIFund,aprogramoftheUSDepartmentofTreasurythatwasestablishedin1994to promote economic revitalization and community development in the United States through investmentinandassistancetoapprovedCDFIs.

Historical Context for Community InvestingToday’scommunityinvestingadvocatesandpractitionerscanbeplacedinahistoricalcontext,particularlywithrespecttocommunityinvesting’srootsinthemovementsofthe1960s.CongresspassedtheEconomicOpportunityActof1964,andestablishedthefederalOfficeofEconomicOpportunity(OEO).TheActaimedatempoweringpoorwhite,black,HispanicandNativeAmericanruralandurbancommunitiesleftoutofthemainstreamofsociety.50

Earlierinthe1960s,theFordFoundationhadbeenexperimentingwithaneconomicdevelopmentvehiclecalled“communitydevelopmentcorporations”(CDC).CongressamendedtheActtocreatefundingforCDCs,localdevelopmentandinvestmententitiesdesignedtofoster“communityinvesting”asweknowittoday.AmongthefirstfundedbytheOfficeofEconomicOpportunitywastheBedfordStuyvesantRestorationCorporationinBrooklyn,NewYork.Itsthenchiefexecutive,FrankThomas,wentontoserveaspresidentoftheFordFoundation,whichjoinedthefederalgovernmentinongoingfundingoftheseentities.

Thusbeganwhathasnowbeenfiftyyearsof“communitydevelopment”practiceandpolicyintheUnitedStates.By1977,theCommunityReinvestmentAct(CRA)waspassedbyCongressaspartoftheHousingandCommunityDevelopmentActof1977.ThepurposeofCRAwastoprovideregulatoryincentivesforcommercialbanksandsavingsassociationstomakeloanstoborrowersinunderservedlow-andmoderate-incomeneighborhoodsandruralregions,


therebyreducingdiscriminatorycreditpracticesknownasredlining.TheNationalCommunityReinvestmentCoalition,aWashington,DC-based,600-memberstrongnetworkofcommunitydevelopersandorganizers,andthewatchdogforCRA,notesthattrillionsofdollarsofprivatecapitalhavebeeninvestedinunderservedcommunitiesasaresultofCRA.

Bythe1990s,thefield—nowrepresentedbycommunitydevelopmentloanfunds,creditunions,banks,andmicrofunds—cametogethertoadvocateforspecialsourcesofcapitalforcommunitylendingorganizationsthatwouldbecomeknowncollectivelyascommunitydevelopmentfinancialinstitutions(CDFIs).ThegrowingnetworkofCDFIsandtheirtradeassociationscametogetherastheCDFICoalitiontocreatethe1994RiegleCommunityDevelopmentandRegulatoryImprovementActasabipartisaninitiative.ThepurposeoftheActwastocreateasourceofinvestmentcapitalspecificallyforcommunitydevelopmentlendersorganizedprimarilyasfinancialinstitutions.TheCDFIFundwascreatedintheDepartmentoftheTreasuryalongwithacertificationprocesstoqualifyCDFIs(atleast 60percentoftheirassetsmustbeinfinancialtransactions).Today,thenationaltradeassociation,Philadelphia-basedOpportunityFinanceNetwork,whichservesasavoice oftheCDFIindustry,calculatesover$30billionoffinancingamongfewerthan200CDFIsacrossAmerica.

OEO,CRAandtheCDFIFundarethreeofthemajorfederalregulatoryandresourceprogramsthatformedthebackboneofcommunitydevelopment.Governmentalresourceshavebeencrucialinspurringcommunitydevelopmentandthecreationofspecificcommunitydevelopmententitiestocarryoutthejobofinvestment.51

TheCDFIfieldisnowavibrantinfrastructureandnetworkofsome1000CDFIsandmanymoreCDCsandnational“intermediaries”that,liketheLocalInitiativeSupportCorporation(LISC)inNewYorkCity,aggregateprivateandpubliccapital,andprovideresourcesforcommunitydevelopment.

Theimpactofthecommunityinvestmentfieldonthelocal,regionalandnationallevelhasgrownovertheyears.Withexpandedinvestmentopportunitiesacrossassetclasses,communityinvestingservesasanotheravenueofopportunityfor“impactinvestors.”IndeedtheCDFIindustryhastakenthevitalstepofcreatingaratingservicecalledtheCDFIRatingandAssessmentSystem(CARS™).Thisratingsystemisdescribedasa“…comprehensive,third-partyanalysisofcommunitydevelopmentfinancialinstitutionsthataidsinvestorsanddonorsintheirinvestmentdecision-making.”52SubscribersoftheCARS™servicecanuseitsanalysisoffinancialstrengthandimpactperformancetoassistwithinvestmentdecision-makingprocesses.

Examplesaboundofthewaysinwhichcommunityinvestinginitiativeshaveaidedindividuals,strengthenedneighborhoods,anddeliveredsocialandenvironmentalbenefits.Ashortlistispresentedbelow.

Self-Help Credit Union and the Revitalization of Downtown AreasIn2005,Self-HelpCreditUnionbought,renovatedandleasedmorethan500,000squarefeetofdowntownofficespaceinNorthCarolinacitiesincludingAsheville,Charlotte,DurhamandGreensboro—muchofitinabandonedorhistoricalbuildings.In2004,Self-Helpmadeitslargestsingleloanuptothatpoint—$40million—torenovatetheAmericanTobaccocomplex,anabandonedtobaccomillindowntownDurham,aneighborhoodthathaddeclinedfor


decades,firstbecauseofsuburbanization,andthenbecauseofthemill’sclosurein1987.Whenthedeveloperhadbeenturneddownbytheconventionalloanmarket,itturnedto Self-Help.AsSelf-Helpreports:

Local development professionals agree that the rehabilitation of American Tobacco accelerated the pace of change and opened up the investment landscape in downtown Durham after piecemeal redevelopment during the 1980s and 1990s. The numbers support this. Less than one significant development project was completed downtown each year during the 17 years American Tobacco sat vacant (1987-2003). In the five years following the opening of Phase I (2005-2009), 16 major projects were completed, a pace of more than three per year. Between 2000 and 2003, the average number of development approvals was 3.75 per year downtown; over the five years since the opening of the revitalized complex (2005-2009), the average number jumped to 11.80 per year. The number of property sales increased by 62 percent from 2005 to 2007, compared to sales between 2002 and 2004; the average sales price increased by 115 percent.53

TheReinvestmentFund(TRF)andAccesstoHealthyFoodCommunity investing organizations in the United States are also involved in providing access tohealthyfoodandeliminatingfooddesertsinpoorandunderservedcommunities,initiativesthatalsohelptoreviveeconomicallydepresseddowntownsandotherareas.AstheCDFIFund notes:

Food deserts are urban neighborhoods and rural towns with limited access to affordable and nutritious food. USDA estimates that more than 23 million people in America live in low-income areas that are more than a mile from a supermarket. Well-targeted financing, technical assistance, and community partnerships can help to improve access to healthy foods, develop and equip grocery stores, create new markets for small businesses and farmers, strengthen the producer-to-consumer relationship, and support broader economic development efforts to revitalize distressed rural and urban communities.54

Forexample,TheReinvestmentFund(TRF),acommunitydevelopmentorganizationthatoperatesinthemid-Atlanticregion,hasmadeanimpactthroughitsPennsylvaniaFreshFoodFinancingInitiative(FFFI),astatewidefinancingprogramdesignedtoimproveaccesstofreshfoodsinunderservedurbanandruralcommunities.Asof2010,FFFIhadattracted206applicationsfromacrossPennsylvania,withninety-threeapplicationsapprovedforfunding.Projectsapprovedforfinancingareexpectedtobring5,023jobsandleasingof1.67millionsquarefeetofcommercialspace.

Brown’sShopRiteofIslandAvenue,Philadelphia,wasthefirststoretoreceivefinancingthroughFFFI.In2005,thestorereceived$250,000inFFFIgrantfundingtohelpwithworkforcedevelopmenttrainingcosts,plusaloanfromTRF’sNewMarketsTaxCreditsprogram.Mostofthesupermarket’s258jobsarefilledbylocalresidents.Thepresenceofthenew57,000squarefootsupermarketisencouragingotherbusinessdevelopmentandjobcreation.

Similarly,theMontanaCommunityDevelopmentCorporationofMissoula,Montana,providedfinancingin2006toaButtenativetoconverttheboarded-upSearsBuildingintheoncebustlingneighborhoodofupperButteintoagrocerystore.Uponopening,theHennesseyMarkethadthirtyemployees,75percentofwhompreviouslyhadbeenunemployed.


OtherSmallBusinessLoansandDevelopmentSmallbusinessesrepresentthevastmajorityofbusinessesintheUnitedStates.Theyoftendriveinnovationandeconomicdevelopment,andcanhelpstabilizeandrevitalizedistressedcommunitiesbyhelpingpeoplemoveabovethepovertyline.Tohelpincubatesmallbusinesses,communitydevelopmentorganizationscanprovidementoringandassistanceinobtainingfinancingorcontracts.

TheCDFIindustryhasbeenabletosupportsmallbusinessesandhascreatedahostofinnovativeproductsandservices.Throughcommunityloanfundsandtechnicalassistance,sustainableandresponsibleinvestorshavehelpedtoprovidecommunitieswiththeresourcestheyneedtoassistthemselves.Manycommunityinvestmentinstitutionsarealsoaddressingenvironmentalneeds.Communitydevelopmentbanks,suchasShoreBankPacificandCommunityBankoftheBay,aswellascommunitydevelopmentventurecapitalfirmslikeCEIVenturesandSJFVentures,providecriticalfinancingtoemerginggreenbusinessesatworkinunderservedcommunities.

GeneratingAlternativestoPredatoryLendingFaithCommunityUnitedCreditUnion,whichwasfoundedbythemembersofMt.SinaiBaptistChurch,inCleveland,in1952,isanexampleofthebenefitscommunityinvestinginstitutionsoffer.Since1999,thecreditunionhasoffereditsmembersa“Grace”loanasanalternativetopaydaylenders,whichtypicallychargeasmuchas300percentinannualizedtermsforshort-termloans.MostoftheGraceloansgotosinglemothers,whenschoolstartsinAugustandagainattheChristmasholidays.Afteroneyear,recipientsofGraceloanswhoareingoodstandingareeligibletoreceivealineofcredit—whichthecreditunionterms“AmazingGrace.”

Supporting Native Culture and ValuesThroughapartnershipwiththeLowIncomeInvestmentFund,theGeneralBoardofPensionandHealthBenefitsoftheUnitedMethodistChurchhelpedtheFriendshipHouseAmericanIndianHealingCenterinSanFranciscotoenlargeitscommunityfacilities.WithitsemphasisonNativeAmericancultureandvalues,theFriendshipHouseoffersaddictiontreatment,transitionalhousingandjobtrainingprogramsprimarilytoNativeAmericanslocatedinCaliforniaandnearbystates.PartlythroughtheGeneralBoard’sloan,theFriendshipHousewasabletoreplaceasmaller,olderfacility.ThenewFriendshipHouse,locatedinSanFrancisco’sMissionDistrict,isafour-story,26,000-square-footfacilitywitheightybedsavailableforresidentialtreatment.FriendshipHousealsohasasweatlodge,basketball courtsandagreathall,whichisusedforeventsandmeetings.

ExpandingSolarPowerandCreatingGreenJobsBostonCommunityCapitallaunchedSolarEnergyAdvantage,whichre-trainsandemploysworkersin“green”jobs.Workingwithpublicandprivatepartners,theprojectinstalledsolarunitsatfivelow-incomehousingdevelopmentsthatserve950families,intotal.Solarenergywillnowprovide25percentoftheelectricityfortheseunits,enablingthemtoavoidcuttingotherservicestopayforspikesinelectricityprices.

GrowingSmallBusinessesandExtendingMicro-LoansIn2011,ASIFederalCreditUnion,aCDFIfoundedin1961andbasedinGreaterNewOrleanswith75,000members,60percentofwhomfallbelowthepovertylevel,launchedKivaNewOrleans,incooperationwithmicro-lenderKivaandtheGoodWorkNetwork.KivaNewOrleans


aimedtodirectmorethan$500,000inmicro-loanstosmallbusinessesinNewOrleans.TheGoodWorkNetworkeducates,coachesandsupportssmallbusinessownerstohelpthemimprovetheirskills,realizetheirfullpotentialandbecomeactiveparticipantsinthelocaleconomy.TheNetworkisleadingtheefforttorecruit,prepareandsupportsmallbusinessesinterestedinreceivingamicro-loanthroughKivaNewOrleans.

ASIFederalCreditUnionworkswiththesmallbusinessesreferredbyGoodWorkNetwork,underwritesthemicro-loans,analyzesloansforrisk,andadministersapprovedloans.KivaisfeaturingNewOrleans-basedborrowersontheKivawebsite,enablingthepeopleofNewOrleansandthebroaderInternetcommunitytoinvestinandchampionthesuccessofNewOrleansbusinesses,$25atatime.OneentrepreneurparticipatingintheKivaNewOrleansmicro-loan program is the founder of the Creative Hands Day Care and Preschool Center in NewOrleans.Her$10,000micro-loanwillenablehertopurchasetoysandequipmentforthechildrenshecaresforandtosupporttheexpansionofherbusiness.

Municipal FinanceIntheUnitedStates,municipalbondsareissuedbycommunitiesatthestateandlocallevel,andhelpfinanceeducation,healthcare,housing,transportation,economicdevelopmentandenvironmentalrecoveryandprotection.Supportedbyarelativelyliquidmarket,municipalfinanceisoneofthemostcost-efficientvehiclesforfinancingcommunityimpact.Bondsforschoolsandpublicprojectsareoftenapproveddirectlybyvoters,assuringtheprojectsareapriorityforthecommunities,andreflectingtheloan’spurpose.AlthoughmunicipalbondsintheUnitedStatesaregenerallyissuedwithtaxexemptinterest,morerecentlyapproximately10percentofthemarkethasbeenissuedastaxablebonds–whichmaymakethemsuitableimpactinvestmentsforpensions,endowments,andfoundations.55

InJune2013,MassachusettsbecamethefirstUSstatetosell“GreenBonds,”modeledonasimilarfinancinginitiativeoftheWorldBank.56Althoughmunicipalbondstargetedtoenvironmentalprogramshavebeenpreviouslyissued,thesearethefirstonestoexplicitlybemarketedas“GreenBonds.”The$100millionbondquicklysoldout,receiving$130millioninordersfrom29institutionsaswellas154individualinvestors.EighttotenoftheseinstitutionalinvestorswerefirsttimeMassachusettsbondpurchasersthatbecameinterestedbecauseofthe‘green’component.Thecapitalraisedwillbedirectedtowardsenvironmentalprojectssuchasenergyefficiency,conservationandcleanwaterprojects,andriverrevitalization.The20-yearbondsofferinterestratesrangingbetween3.20percentand3.85percent.

Social Venture CapitalSocialventurecapitalisaformofventurecapitalinvestingthatseeksoutearly-stageinvestmentsincompaniesthathaveidentifiedwaystobemoreenvironmentallyorsociallyresponsiblebeforetheyarepubliclytraded.Venturecapitalfundsspecializinginalternativeenergyandcleantechnologycompanieshaveattractedconsiderablecapitalfrommainstreamventurecapitalinvestorsoverthelastdecade.57 Thesecompaniesareoftenrunbyvisionaryentrepreneurswhohaveidentifiedprofitablewaysofaddressingsociety’sneeds.Forexample,Minneapolis-basedNorthSkyCapital’srenewableenergyinfrastructureprojectsincludeinvestmentsina4.5megawattbiogasfuelcellfacilityinSanDiego,whichwouldbethelargestofitskindintheUnitedStates.CalvertSpecialEquities’investmentsincludeGROSolar,oneofthelargestdistributorsandinstallersofsolarenergysystemsintheUnitedStates.


MicroenterpriseBusinessLendingtomicro-enterprisesisanimportantstrategyintheefforttoimprovetheeconomicwell-beingoflow-incomefamilies.Throughloansandloanfundssetupforsmall,mediumandmicro-enterprises,SRIinvestorshavemadecapitalavailabletoacritical,underservedsegmentofthebusinessmarketplacebothintheUnitedStatesandabroad.InAfricaandAsia,microfinancehasimprovedthesocio-economicstatusofmanywomenwithlittleornocapitalorcreditbyprovidingsmallloanstothemtostarttheirownbusinessesandtoreducetheireconomicdependenceonbehaviorsthatputthematriskofcontractingHIV.Sustainable andresponsibleinvestorshavehelpedchannelinvestmentdollarstothesmall,mediumandmicro-enterprisesthatarebestmeetingsustainabilitychallengesintheircommunities.

Forexample,upfrontinvestmentsfromOikocredit,aninternationalcommunitydevelopmentinstitution,toDivineChocolate,achocolatemanufacturerco-ownedbytheKuapaKokoocooperativeinGhana,generatedhopeandnewopportunitiesforcocoafarmersintheWestAfricancountryofSierraLeone.InFebruary2010,DivineChocolatepurchasedthefirstshipmentofFairTradeCertifiedcocoafromtheSierraLeonecooperativeKpeyaAgriculturalEnterprise(KAE)forinclusioninitschocolatebarsandotherfairtradechocolateproducts.Thefairtradesystemprovidesfarmerswithafairpricefortheirproducts,offeringasocialpremiumoverconventionalmarketprices.ThepartnershipwithDivineChocolate,co-ownedbytheKuapaKokoocooperativeinGhana,hasresultedinnumerouscommunitydevelopmentprojects,includingnewschools,waterwells,bridgesandacommunity-basedcreditunionavailabletocooperativemembersfornewentrepreneurialproducts.


Foryears,sustainableandresponsibleinvestorshaveinfluencednationalandglobalpolicyinordertoadvancetheirprinciplesandpriorities.Whensustainableinvestorsaresuccessfulinwinninglegislative,regulatoryandotherpublicpolicychanges,theycanachievebroadchange.Responsibleinvestorshavealsomadeprogressatthenationalandgloballevelbycreatingorganizationstocoordinatepublicpolicyworkortoadvanceresearchandsetstandardsfortheinvestmentindustry.

Thesestrategiesaregrowinginimportanceinthecontextofincreasinglycomplexglobaleconomicandsocialchallenges.SustainableandresponsibleinvestorshaveworkedwithandaskedforregulatorychangesfromUSgovernmentagencies,testifiedandadvocatedtoCongressonmultipleSRIpriorities,andworkedwithotherorganizationsandcoalitionstopursuepolicyadvancesintheUnitedStates.InvestorshavealsoworkedwithinternationalorganizationssuchastheUnitedNations(UN),theGlobalReportingInitiative,thePrinciplesforResponsibleInvestment,theGlobalSustainableInvestmentAlliance,andothersustainablefinanceorganizationsaroundtheworld.

Impacts on Public PolicySRIhasinfluencedbothdomesticandinternationalpolicy.Domestically,publicpolicyeffortshavefocusedontheSecuritiesandExchangeCommission(SEC),theUSEnvironmentalProtectionAgency(EPA)andothergovernmentagencies,aswellasCongressandthe WhiteHouse.

AstheadvocatefortheSRIcommunitybeforetheUSgovernment,USSIFcoordinatespublicpolicyeffortstopromotesustainableandresponsibleinvestment.USSIFoffersmemberstheopportunitytohelpshapepolicyonsustainabilityissuesbyconveninginvestor-onlymeetingswithpolicymakers,publishingpositionpapers,submittingcommentletters,providingmodellettersformemberstoadaptfortheirownuse,trainingmembersonadvocacystrategiesandwritingopinionpiecesformediaplacement.Forexample,in2007,USSIFplayedasignificantroleinensuringthatsustainableinvestorsreachedouttotheSECwiththeirconcernsaboutapreliminaryannouncementtosubstantiallyraisethevotesupportthresholdsrequiredforresubmissionofshareholderproposals.TheSECultimatelychosenottomoveforwardoneffortstolimittherighttofileshareholderresolutions.

InApril2012,aspartoftheDodd-FrankAct,theSECestablishedanewInvestorAdvisoryCommitteetoadvisetheCommissiononregulatorypriorities,theregulationofsecuritiesproducts,tradingstrategies,feestructures,andtheeffectivenessofdisclosure.TheCommitteeisalsoresponsibleforadvisingoninitiativestoprotectinvestorinterestsandtopromoteinvestorconfidenceandtheintegrityofthesecuritiesmarketplace.58USSIFmemberrepresentativesfromtheAFL-CIO,ArielInvestmentsandDominiSocialInvestmentsserveontheSEC’s18-memberInvestorAdvisoryCommitteeandbringinsightandexperienceofsustainableandresponsibleinvestmenttotheCommission’sdeliberations.

Influencing Public Policy and Developing Global Standard-Setting Organizations


Dodd-FrankFinancialReformLawIn2010,sustainableinvestorsintheUnitedStateswonanimportantvictorywiththepassageoftheDodd-FrankWallStreetReformandConsumerProtectionAct(the“Dodd-FrankAct”).Thelawaffectsmanyaspectsofthefinancialservicesindustryandisoneofthemostsignificantchangestothefinancialregulatorysystemindecades.Thislawisaimedatrestoringpublicconfidenceinthefinancialsystemandpreventinganotherfinancialcrisis.Forexample,theDodd-FrankActspecifiesthatpubliclytradedcompaniesmustallowshareholderstoholdanadvisoryvoteontheirexecutives’paypackagesatleastonceeverythreeyears.Dodd-Frankalsoincludesotherprovisionsimportanttosustainableandresponsibleinvestors,discussedbelow.

Executive Compensation and Pay Disparity: TheDodd-FrankActincludesaprovisionthatrequirespubliccompaniestodiscloseCEO-to-workerpayratios.Theprovisionreflectsinvestor concern that the dramatic rise in US CEO pay levels over the past three decades has comeattheexpenseofshareholdersandotherstakeholders,includingcompanyemployees.Moreover,executivepaypackagesthataretiedprimarilytoshort-termfinancialindicatorsandstockpricescanprovideincentivesforCEOstotakeexcessiverisks.InappropriateexecutivecompensationpackagesatfinancialservicescompanieshavebeenidentifiedascontributingfactorsintheWallStreetfinancialcrisis.InMarch2012,afterincreasingpressurefromlawmakersandinvestorsawaitingaction,theSECannounceditsintentiontoissueregulationsimplementingpayratiodisclosurerequirement“inthenextcoupleofmonths.”SustainableandresponsibleinvestorscontinuetoprovidetheSECwithinputconcerningtherulemakingprocessandawaittheSECrule.59

Conflict Minerals: Dodd-Frankalsorequirespublicly-tradedUScompaniesthatsourcemineralssuchastin,tungsten,tantalumandgoldtoreportefforts,includingindependentprivatesectoraudits,toensurethattheyarenotsourcingmineralsfromconflictareasinandaroundtheDemocraticRepublicoftheCongo(DRC).Theeasternpartofthecountryhasbeenengulfedinahorrificfactionalwar,whichhasclaimedmorethan5.4millionlivessince1998.HumanitarianobserversbelievethattheDRC’smineralmines,manyofwhicharecontrolledbyvariousarmedfactions,providefinancingthatfuelstheconflict.SincethepassageoftheDodd-FrankAct,investorshaveworkedactivelywithotherstakeholderstoengagewithseniorrepresentativesattheSEContherulemakingprocessfortheprovision.Theirgoalistosupportprocedures to ensure that minerals from legitimately

managedminesinconflict-freeareasoftheDRCcancontinuetobepurchasedtosupportcommunitiesinthiscountry.Aspartofthemulti-stakeholdergroup,investorssubmittedtotheSECrecommendationsendorsedbycompaniessuchasAMD,Dell,Ford,Hewlett-Packard,andMicrosoft.TheSECannouncedfinalrulesonconflictmineralsinAugust2012,requiringcompaniestodisclosetheiruseofconflictmineralsifthosemineralswere“necessarytothefunctionalityorproductionofaproduct.”InOctober2012,theUSChamberofCommerceandNationalAssociationofManufacturerstookissuewiththeruling,bringingafederalsuitagainsttheSEC.InJuly2013,theDCDistrictCourtupheldtheruleanddismissedthelawsuitfiledby

SINCE THE PASSAGE OF THE DODD-FRANK ACT, INVESTORS

AND OTHER STAKEHOLDERS HAVE ENGAGED WITH THE SEC IN THE RULEMAKING PROCESS FOR THE

DISCLOSURE OF CONFLICT MINERALS. IN 2012, THE SEC

ISSUED FINAL RULES REQUIRING COMPANIES TO DISCLOSE THEIR

USE OF CONFLICT MINERALS.


theUSChamberofCommerce,theNationalAssociationofManufacturers,andthe BusinessRoundtable.

Payments to US or Foreign Governments: SustainableandresponsibleinvestorswereleadingadvocatesoftheDodd-FrankActprovisionsthatrequirecompaniesregisteredwiththeSECtodisclosethepaymentstheymaketoforeigngovernmentsortotheUSgovernment,forthecommercialdevelopmentofoil,naturalgas,orminerals.Severalhumanrightsorganizationsandconcernedinvestorshavecalledforgreaterdisclosurebecausethesecrecy of extractive companies’ payments to host governments can facilitate corruption and misappropriationofrevenues,leadingtosocialunrestandunstablecommercialoperatingenvironments.However,whiletheSECmustissuearuletoimplementthisprovisionofDodd-Frank,ithitasnagwhenabusinesscoalitionchallengedtheruleincourt.OnJuly2,2013,theUSDistrictCourtfortheDistrictofColumbiamadearulinginAmerican Petroleum Institute et al. vs. SECthatrequirestheSECtoreviewthispaymentdisclosurerule.Whiletherulingwasadisappointment,investorsrepresentingmorethan$1.2trillioninassetsundermanagementsubmittedcommentssupportingtheSEC’srulemakingandemphasizedthematerialityofthe disclosuresrequiredbythelaw.

Consumer Financial Protection Bureau: Inresponsetothelate-2000srecessionandfinancialcrisis,inwhichdeceptiveandpredatoryhomelendingpracticeswereasignificantcontributingfactor,60sustainableandresponsibleinvestorssupportedthecreationofanindependent federal agency to improve disclosure standards and protections to consumers offinancialproducts.TheDodd-FrankActcreatedtheConsumerFinancialProtectionBureau(CFPB)andgaveittheprimaryresponsibilitytoenforcefederallawsandissueregulationstoprotectfinancialconsumers.SustainableandresponsibleinvestorsthenurgedtheWhiteHouseandCongresstonominateadirectorandopposeanyeffortstorestructuretheBureau.TheCFPBofficiallybeganoperationsonJuly21,2011.

PublicPolicyImpactonCorporatePoliticalContributionsSustainableandresponsibleinvestorshavealsoengagedwiththeSECtouseitsexistingauthoritytoimprovedisclosureofcorporatepoliticalcontributions.SinceJanuary2010,when the Supreme Court’s decision in Citizens United v. Federal Election Commission removedrestrictionsonpoliticaladvertisingandspendingbycorporationsandunions,concernedinvestorshavelookedtoregulatoryandlegislativemeanstolimitthedamagefromthedecision.InNovember2011,USSIF,alongwithUSSIFmembersandotherinvestorsmanagingmorethan$690billion,askedtheSECtosupportarulemakingpetitionthaturgedtheSECtorequirefulldisclosurebycompaniesoftheirpoliticalspending.TheCommitteeonDisclosureofCorporatePoliticalSpending,whichiscomprisedof10corporateandsecuritieslawprofessors,submittedthepetition.AsofMay2012,theSEChadreceivedover600,000commentsontheproposal-arecordinSECrulemakinghistory.TheSECannouncedinJanuary2013thatitwouldconsiderrequiringpubliccompaniestodisclosepoliticalspending.

PublicPolicyImpactonEnvironmentalIssuesSustainableandresponsibleinvestorshavelongsoughttoimprovecompanies’disclosureandactiononclimatechange,andtheyachievedsuccessesthroughadvocacybeforetheSECandEnvironmentalProtectionAgency(EPA).


Climate Change Issues:Inamulti-yearcampaign,concernedinvestorssuccessfullyencouraged the SEC to issue guidance to companies on disclosing the material impacts theyfacefromclimatechange.InvestorcoalitionswrotetotheSECaboutthisissuein2004and2006,and,in2007,agroupoftwenty-twoinvestorsandenvironmentalorganizationsformallypetitionedtheSECtoprovideinterpretiveguidanceonclimatechangeriskdisclosureinsecuritiesfilings.Shortlyafterthepetitionwasfiled,theSenateBankingCommittee’sSubcommitteeonSecurities,Insurance,andInvestmentheldahearinginwhichleadinginstitutionalinvestorsrepeatedtheircallsfordetailedclimateriskdisclosureinsecuritiesfilings.

InJanuary2010,theSECissuedthedefinitiveguidancetheseinvestorshadsought.Specifically,theSEC’sinterpretative guidance says that companies should report toinvestorsiftheyarelikelytofacematerialimpactsfrom climate-related developments in the following areas: legislationandregulation,internationalaccordsandtreaties,regulationorbusinesstrends,andthephysicalimpactsofclimatechange.Afewmonthsearlier,inOctober2009,theSECDivisionofCorporationFinancehad signaled its growing awareness of this issue when it issued guidance that it would no longer allow companies toroutinelyomitshareholderproposalsthataskcompaniestoevaluateriskfromclimatechangeandotherhealthandenvironmentalissues.

Thesustainableinvestmentcommunityhasalsosupportedregulationsrequiringcompaniestoreporttheirgreenhousegas(GHG)emissions.InJune2009,USSIFissuedaformalcommenttotheEPAonitsproposedruleformandatoryreportingongreenhousegasemissions.Therule,whichwasadoptedinOctober2009,requiredannualreportingtobeginonMarch31,2011,foremissionsduring2010.Companiessubjecttotheruleincludefossilfuelsuppliers,engineandvehiclemanufacturers,andallfacilitiesthatdirectlyemit25,000metrictonsormoreofcarbondioxideequivalent.USSIF’scommentwelcomedtheproposedruleasacriticalfirststepinmanagingandeventuallycurbingUSgreenhousegasemissions.ThecommentalsounderscoredUSSIFmembers’interestinobtainingGHGemissiondatanotonlybyfacility,butalsofortheentireparentcompany,particularlyifitispubliclytraded.USSIFsaid,“webelievethattherule,especiallywithcertainmodificationsweareproposing,couldgreatlyassistinvestorsinassessingtheclimate-relatedriskofportfoliocompanies.”

TheEPAappearedtorespondtothespecificsuggestionsinUSSIF’scommentletterinMarch2010,whenitissuedaproposedamendment,sinceimplemented,totheMandatoryGreenhouseGasReportingRuletorequirereportingfacilitiestoprovidethename,addressandownershipstatusoftheirUSparentcompany,andtheirprimaryandallotherapplicableNorthAmericanIndustryClassificationSystem(NAICS)codes.USSIFinturnissuedaformalcommentlettertotheEPA,endorsingthisamendment.

Proposed Mercury and Air Toxics Rule: InAugust2011,USSIFfiledacommentwiththeEPAendorsingitsproposedstandardforcurbingmercuryandothertoxicemissionsfromcoal-andoil-firedelectricgeneratingunits.Inthecomment,USSIFsaidtherulewouldimprovepublichealth,createjobsandspurinnovation,producingbenefitssuchasreducedabsenteeismandimprovedproductivityacrossabroadrangeofeconomicsectors.Manyotherorganizationsandinvestorsalsowroteinsupportoftherule,andtheEPAannounced

IN JANUARY 2010, THE SEC RESPONDED TO INVESTOR

CONCERNS BY ISSUING INTERPRETIVE GUIDANCE

ON CORPORATE REPORTING ON MATERIAL IMPACTS

FROM CLIMATE-RELATED DEVELOPMENTS.


thefinalruleinDecember2011.Onecommentatorexplainedthesignificanceofthe EPA’s decision:

It’s worth lifting our heads out of the news cycle and taking a moment to appreciate that history is being made. Finally controlling mercury and toxics will be an advance on par with getting lead out of gasoline. It will save tens of thousands of lives every year and prevent birth defects, learning disabilities, and respiratory diseases. It will make America a more decent, just, and humane place to live.61

PublicPolicyImpactonInternationalIssuesBuildingonlessonsfromtheanti-apartheiddivestmentcampaignofthe1970sand1980s,sustainableandresponsibleinvestorshaveadvocateddiplomaticandeconomicpressuresagainstBurmaandSudan,twocountrieswhosegovernmentshaveperpetratedseverehumanrightsabusesagainsttheirpeople.

Burma: Afteramilitaryjuntaseizedpowerin1988andruthlesslysuppresseddemocracy,theInternationalLaborOrganizationandotherUNagenciesdocumentedpervasivehumanrightsviolationsbytheBurmesedictatorship,includingforcedorcompulsorylabor(especiallyatoilandgaspipelinefacilities),forcedrelocationandpoliticalrepression.Becausethemilitarygovernment depended on foreign trade and investment to sustain its military and purchase weapons,sustainableandresponsibleinvestorsrespondedwithpoliciestoprohibitinvestmentincompaniesinstrategicsectorsandaskedportfoliocompaniestostopconductingbusinesswiththemilitarygovernment.

Many of these investors also advocated US state and federal policies to increase pressure ontheBurmesegovernment,suchasthe“selectivepurchasing”lawthatthestateofMassachusettspassedin1996tolimititspurchasesfromcompaniesthatdidbusinessinBurma.Sustainableinvestors,suchasUSSIFmemberCleanYieldAssetManagement,alsosuccessfullyadvocatedforaVermontlaw,enactedin1999,thatrequiresthestatetreasurertovoteinfavorofshareholderresolutionsraisingconcernsatcompaniesdoingbusinessinBurma.AlthoughtheUSSupremeCourteventuallyruledtheMassachusettslawtobeunconstitutional,asitinfringedonfederalpowers,theUSgovernmentimposedsanctionsthatbarrednewUSinvestmentinBurmabeginninginApril1997.Thefederalgovernmentfurthertightenedthesesanctionsin2003bybanningimportsfromBurmaandtheprovisionoffinancialservicestothecountry.

Overthisperiod,sustainableandresponsibleinvestors,inadditiontosupportingthesepolicyinitiatives,continuedtoapplypressureoncompaniescontinuingtodobusinessinthecountry.Facinggrowingrestrictionsandpublicdisapproval,companiescontinuedtowithdraw.

Unocal—TheoilcompanyUnocalfacedparticularpressurewhenin2002,theUSNinthCircuitCourtofAppealsruledthattwolawsuits,filedin1996byBurmesevillagersagainstUnocalundertheUSAlienTortClaimsAct,couldproceed.TheplaintiffsallegedthatUnocalwasresponsibleforhumanrightsviolationsinconnectionwiththeconstructionofanoilpipelinetobringnaturalgasfromoffshoreBurmathroughthejungleintoThailand.Burma’smilitary,whichalreadyhadawell-documentedhistoryofhumanrightsabusesbythen,hadinsistedonprovidingsecurityforthepipeline.InDecember2004,justmonthsaftertheUSSupremeCourtdecisionupheldtheuseoftheAlienTortClaimsAct,Unocal


announcedthatithadreachedasettlementwiththeplaintiffs.Themonetarypayoutwasreputedtobesignificant.Asthelawsuitsproceeded,sustainableandresponsibleinvestorsengagedwithUnocalandothercompaniesaboutthepotentialliabilitiestheycouldfacewithregardtotheiroperationsinBurmabecauseofallegationsofhumanrightsabuses.OnAugust10,2005,UnocalmergedwithChevronCorporationandcontinuestooperateinBurma.

Toyota—AnotherwatershedeventoccurredinOctober2010,whenToyotaMotorNorthAmerica,afteryearsofengagementwithsustainableandresponsibleinvestors,confirmedthatitsmajortradingpartner,ToyotaTsusho(TTC),divesteditsownershipstakeinMyanmarSuzukiMotor.Toyota’sannouncementfollowedthreeyearsofdialoguewithacoalitionofinvestors,includingTrilliumAssetManagementCorporation,DominiSocialInvestments,BostonCommonAssetManagementandtheInterfaithCenteronCorporateResponsibility.ToyotaannouncedthatitstradingpartnerhadendeditsjointventurewiththeBurmesegovernment.

TheeconomicpressuresonBurmathatsustainableandresponsibleinvestorshelpedtosetinmotionseemtohavehadaneffect,asthemilitary-backedgovernmentisproceedingwithacautiousreformprocess.In2011,afterfacingconcertedpressure,theBurmesegovernmentreleaseddemocracyactivistandNobelPeacelaureateAungSanSuuKyifromhousearrestandfreedhundredsofpoliticalprisoners.FormerUSSecretaryofStateHillaryClintontraveledtothecountryinNovember2011—thefirstvisitofatop-levelAmericanofficialinmorethanfiftyyears.PresidentObamavisitedBurmaayearlaterinNovember2012afternormalizing USdiplomaticrelationswithBurmaandalsoannouncing“targetedsanctions”againstthecountry.Usingapresidentialwaiver,hesuspendedbroadtradeandinvestmentsanctions.AungSanSuuKyihasbeenelectedtotheparliamentandhundredsofpoliticalprisoners havebeenreleased.In2013,PresidentObamaextendedbyoneyearcertaintargetedUSsanctionsagainstBurma.

Sudan: ConcernedinvestorshavequestionedcompaniesdoingbusinessinSudansince1999,whenoilwasfirstextractedfromthecountry.TheoilrevenuesthatenrichedthegovernmentandmilitarydidnotprovebeneficialtotheSudanesepeopleasawhole,particularlywhentheKhartoumgovernmentbegantosponsorattacksagainstcommunitieslivingintheoil-richsouthernareasofthecountrytoclearthewayforoilexploration.Afewyearslater,theKhartoumgovernment,throughtheuseofproxymilitias,beganfomentingviolenceinthewesternprovinceofDarfur.Althoughsometribesinthisareahadbeenrebellingagainstthecentralgovernment,thebroadindiscriminatenatureoftheattackssuggestedawarforlandwasunderway.In2004,theUSCongresspassedaresolutiondeclaringthehumanrightsabusesinDarfurtobegenocide.

Since1997,USlawhasbarredUSfirmsfromoperatinginSudanduetoconcernsaboutthecountry’ssupportofterrorism.Thus,sustainableandresponsibleinvestorsconcernedaboutinvestmentexposuretoSudanbegantofocusonthetwodozenChineseandothermultinationalsengagedinoil,mineralextractionandpowerindustries,andthemutualfundsthatheldsharesinthem.In1999,afterChinaNationalPetroleumCorporation(CNPC),aChinesestate-ownedcompanywithmajoroiloperationsinSudan,announcedplanstoissue$10billioninsharesontheNewYorkStockExchange,humanrightsgroupsarguedthattheshareofferingwouldfinanceCNPC’soperationsinSudan.CNPCrespondedbycreatingasubsidiary,PetroChina,whichwasostensiblyresponsiblesolelyfordomesticChineseoperationsandnotforoperationsinSudan.


RatherthanoffersharesinCNPC,thecompanyonlylistedsharesinPetroChina.Nonetheless,theinitialofferofPetroChinasharesontheNYSEraisedonly$2.9billion,farshortofthetarget.In2007,ashareholderadvocatefiledaresolutionwithBerkshireHathawayaskingthecompanytonotinvest“…inthesecuritiesofanyforeigncorporationorsubsidiarythereofthatengagesinactivitiesthatwouldbeprohibitedforUScorporationsbyExecutiveOrderofthePresidentoftheUnitedStates…”,andmadeclearinthesupportingstatementthatshewasconcernedaboutHathawayBerkshire’sinvestmentinPetroChina.62Severalmonthslater,Berkshiresolditsshares.Similarresolutionsweresubsequentlyfiledatseveralmutualfunds.

Investor activism also led to the enactment of the Sudan AccountabilityandDivestmentAct,signedintolawbyPresidentGeorgeW.BushonDecember31,2007.Amongotherprovisions,thelawpermitted,butdidnotrequire,states and localities to adopt and enforce measures requiringdivestmentfromcompaniesoperatinginfoursectors:oil,powerproduction,mineralextractionandmilitaryequipment.ForinvestmentcompaniesandinvestmentadvisorsthatdivestfromsuchbusinessoperationsinSudan,thelawalsoprovidedasafeharborfromlawsuitsfromclients,includingstateandlocalgovernments,providedthattheinvestmentcompanies andadvisorsfollowedcertaindisclosurerequirements.

The federal law also provided further encouragement to theSudandivestmentmovement.Concernedinvestors,includingpublicfundsinCalifornia,Illinois,NewJerseyandotherstates,haveadoptedSudan-specificpolicies,

engagedcompanies,andpulledtheirinvestmentsoutofSudan.Forinstitutionalinvestors,inasset-weightedterms,investmentcriteriarelatedtoSudandisplacedtobaccoasthemostprominentESGfactorincorporatedintoinstitutionalinvestmentpolicies.ResearchbyUSSIFFoundationshowsthat$1.63trillionininstitutionalassetshaveSudancriteria.63

Creation of Global Standard Setting & Professional OrganizationsSustainableandresponsibleinvestors,inadditiontoadvocatingforvariouslawsandregulationsintheUnitedStatesandelsewhere,havecontributedtosignificantchangesthrough the creation and support of professional investor initiatives and organizations aroundtheworld.

CreationofGlobalSIFsSustainableandresponsibleinvestorshavecreatedglobalsustainableinvestmentforums(SIFs)—membershipassociationsthatworktopromotesustainableinvestinginaspecificareaoftheworld. • North America: USSIF:TheForumforSustainableandResponsibleInvestment(United

States);SocialInvestmentOrganization(Canada). • Europe: UKSIF;Eurosif;BELSIF(Belgium);Dansif(Denmark);Forumpourl’Investissement

Responsable(France);ForumNachhaltigeGeldanlagen(Germany/Austria/Switzerland);ForumperlaFinanzeSostenibile(Italy);Spainsif(Spain);VBDO(TheNetherlands)andSWESIF(Sweden).

CRITERIA RESTRICTING INVESTMENTS IN COMPANIES DOING BUSINESS WITH THE

SUDAN CONTINUE TO TOP THE LIST OF ESG ISSUES THAT

INSTITUTIONS INCORPORATE INTO THEIR INVESTMENT. US SIF

FOUNDATION SHOWS THAT $1.63 TRILLION IN

INSTITUTIONAL ASSETS HAVE SUDAN CRITERIA.


• Asia: AssociationofSustainableandResponsibleInvestorsinAsia(ASrIA);ResponsibleInvestmentResearchAssociation(India);SIF-Japan;andKoSIF(Korea).

• Australasia: ResponsibleInvestmentAssociationofAustralasia(RIAA). • Africa: AfricaSIF,aweb-basedplatform.

TheseorganizationsrepresentinvestmentpractitionersandotherstakeholdersthatarecommittedtoSRI.TheSIFsusemediaandproduceresearchtoraiseawarenessofSRI,engagewithpolicymakerstoadvocatesustainableinvestmentintheirrespectiveregions,andgathermemberstoworkonvariousprogramsandinitiatives.Additionally,globalSIFinitiativesareundertakenbytheGlobalSustainableAlliance(GSIA)throughtheleadershipofUSSIF,UKSIF,Eurosif,VBDO,SIO,RIAAandASrIA.

CDP(formerlyCarbonDisclosureProject)FormedintheUKin2000,theCDPisanindependentnot-for-profitorganizationwiththelargestdatabaseofprimarycorporateclimatechangeinformationintheworld.TheCDPactsonbehalfof551institutionalinvestors,holding$71trillioninassetsundermanagementandsomefiftypurchasingorganizations,suchasDellandPepsiCo.TheCDPpartnerswithbusinessestomeasuretheircarbonfootprints,thusfacilitatingcompanyeffortstoreducetheircarbonfootprints.TheCDPsentitsfirstcarbondatarequesttocorporationsin2003,and235companiesresponded.Today,morethan3,000organizationsinaboutsixtycountriesmeasureanddisclosetheirgreenhousegasemissions,watermanagementefforts,andclimatechangestrategiesthroughCDP,inordertosetreductiontargetsandmakeperformanceimprovements.Thisdataismadeavailabletoawideaudienceofinstitutionalinvestors,corporations,policymakersandtheiradvisors,publicsectororganizations,governmentbodies,academicsandthegeneralpublic.

TheCDPalsoengagesmunicipalgovernments.Initsseconddisclosurecycle,theCDPinvitedthemunicipalgovernmentsof140oftheworld’smostpopulatedcitiestoreportinformationontheirgreenhousegasemissionsandclimatechangestrategies.TheCDPhasalsobeguntorequestmunicipaldataonwateruseandwaterrisks,inadditiontodisclosingcarbondata,thusrecognizingthesignificantriskposedbywaterscarcity.

CeresandtheInvestorNetworkonClimateRisk(INCR)Sustainableandresponsibleinvestorshavespentdecadesdemandingimproveddisclosurefromportfoliocompaniesofthematerialfinancialriskstheyfacerelatedtotheenvironmentandclimatechange.Alandmarkeventthatraisedinvestors’awarenessofsuchrisksoccurredin1989,whenamajorenvironmentaldisaster,theExxonValdezoilspill,shookpublicconfidenceincorporateAmerica.Nearly11milliongallonsofoilpouredintoAlaska’sPrinceWilliamSound,devastatingoneoftheworld’smostpristinehabitats.Justsixmonthsafterthespill,agroupofsustainableinvestorslaunchedCeres.Ceresisanationalnon-profitcoalitionofinvestors,environmentalorganizationsandpublicinterestgroupsthatworkswithcompaniestoaddresssustainabilitychallenges,suchasglobalclimatechangeandwaterscarcity.CeresdirectstheInvestorNetworkonClimateRisk(INCR),agroupofnearly100leadinginstitutionalinvestorsmanagingcloseto$10trillioninassetsfocusedonthebusinessimpactsofclimatechange.TheorganizationalsolaunchedBusinessforInnovativeClimate&EnergyPolicy(BICEP),acoalitionofleadingconsumerbrandcompaniesadvocatingforstrongclimateandcleanenergypoliciesintheUnitedStates.Theimpactofsustainableinvestorsindriving Ceres forward has meant that there is now a much more widespread practice of corporate self-auditingandenvironmentalriskdisclosure.


TheCouncilofInstitutionalInvestors(CII)Foundedin1985,theCouncilofInstitutionalInvestors(CII)isanon-profitassociationofover125pensionfundsandemployeebenefitfunds,foundationsandendowmentswithcombinedassetsthatexceed$3trillion.Itwasfoundedatatimewhenshareownershadlittlesayinmostcorporatedecisionsanddidnotappreciatethepotentialpoweroftheirvotes.PartlyasaresultofthegrowthofSRI,CIIhasbecomeoneoftheleadingvoicesforgoodcorporategovernanceandstrongshareholderrights.CIIcontinuestofilemanycommentlettersonregulatoryreformproposalsandspeaksouttohelpshaperegulationstoimplementtheDodd-Frankfinancialreformlaw.

Reporting InitiativesGlobal Reporting Initiative—SustainableandresponsibleinvestorsplayedasignificantroleincreatingtheGlobalReportingInitiative(GRI),whichstartedasaprojectofCeres,butbecameanindependententityinthelate1990s.GRIisnowthedefactointernationalstandardusedbymorethan1,800companiesforreportingonenvironmental,socialandeconomicperformance.AnincreasingnumberofGRIreportsareeasilyaccessibletoglobalinvestorsthroughsuchplatformsasBloombergterminalsthatenablemonitoringandanalysisofrealtimefinancialmarketdata.AccordingtoGRI,USgovernmentagenciesthateitherreferenceGRIintheirsustainabilityreportsordofullGRIreportingincludetheUSPostalService,USArmyandtheUSAirForce,amongmanyothers.

The International Integrated Reporting Council:ThanksinlargeparttotheworkofGRI,thenatureandscopeofsustainabilityreportinghasalsofundamentallychanged.TheInternationalIntegratedReportingCouncil(IIRC),acoalitionofregulators,investors,companies,accountingprofessionals,standardsettersandcivilsocietyorganizations,wasestablishedin2010todemonstratethelinkagesbetweenanorganization’s,strategy,governanceandfinancialperformanceandthesocial,environmentalandeconomiccontextwithinwhichitoperates.TheIIRCplanstopublishaglobalframeworkforintegratedreportinginDecember2013.Manysustainableandresponsibleinvestorsaresupportingsuchcomprehensive,substantiveandintegratedreportingasitwillenablethemtomakebetter-informedshort-andlong-terminvestmentdecisions.

The Sustainability Accounting Standards Board (SASB):SASB,anon-profitincorporatedinJuly2011,isdevelopingstandards—bysectorandindustry—forthematerialenvironmental,social and governance information that companies traded on US exchanges should disclose intheirannualfilings.Theorganizationbelievesthateveryinvestorhastherighttomaterialinformation.InApril2013,SASBreleaseditsdraftguidelinesforthefinancialsector,releasingalistofmaterialissuesandkeyperformanceindicators(KPIs)mostrelevanttosevenindustries:commercialbanks,investmentbankingandbrokerage,assetmanagementandcustodyactivities,consumerfinancemortgagefinancesecurityandcommodityexchanges,andinsurance.SASBalsoplanstodevelopreportingstandardsthatidentifythematerialESGissuesandstandardizedperformancemetrics,includingkeyperformanceindicators(KPIs),for88specificindustriesacross10sectors.”

InvestorEnvironmentalHealthNetwork(IEHN)Sustainableandresponsibleinvestorshavebeenconcernedaboutthegrowingdangersoftoxiccomponentsinconsumerproducts.Problemsregardingtoxicchemicalsnotonlythreatenacompany’sbrandimage,butalsoposepotentialriskstoconsumerandworkerhealth.TheIEHNwasformedasapartnershipofinvestmentmanagersandnon-governmental


organizationsconcernedaboutthefinancialandpublichealthrisksassociatedwithcorporatetoxicchemicalspolicies.IEHNencouragescompaniestoreduceoreliminatethetoxicchemicalsintheirproductsandactivities.

PrinciplesforResponsibleInvestment(PRI)ThePrinciplesforResponsibleInvestment(PRI)isaglobalinvestornetwork,foundedbyformerUNSecretaryGeneralKofiAnnanin2005,whichhighlightsthegrowingglobalinvestorinterestincorporatemanagementofESGissues.ThePRIInitiativehasgrownsignificantlysinceitsinceptiontoover1,200signatoriesfrommorethan50countries,includingmanyoftheworld’slargestpensionfunds,insurancecompanies,andinvestmentmanagers.TheymanagecombinedassetsofmorethanUS$34trillion.Signatoriescommittothefollowing six principles:

PRI Principles Principle 1: WewillincorporateESGissuesintoinvestmentanalysisanddecision-making

processes.Principle 2: WewillbeactiveownersandincorporateESGissuesintoourownership

policiesandpractices.Principle 3: WewillseekappropriatedisclosureonESGissuesbytheentitiesinwhich

weinvest.Principle 4: We will promote acceptance and implementation of the Principles within the

investmentindustry.Principle 5: Wewillworktogethertoenhanceoureffectivenessinimplementingthe

Principles.Principle 6: We will each report on our activities and progress towards implementing

thePrinciples.

ThePrinciplesprovideavoluntaryframeworkbywhichallinvestorscanincorporateESGissuesintotheirdecision-makingandownershippractices.

UnitedNationsEnvironmentProgrammeFinanceInitiative—AssetManagementWorkingGroupTheUnitedNationsEnvironmentProgrammeFinanceInitiative(UNEP-FI)isacoalitionofmorethan200globalfinancialinstitutionsworkinginpartnershipwiththeUNEPtopromotesustainablefinance.UNEP-FIhasbeenactiveininternationalpublicpolicydebatesinthisarea,mostnotablythroughitsworktosupportUNEP’sGreenEconomyprograminadvance ofthe2012RIO+20conferenceinBrazil.

UNEP-FIproduceshighlyinfluentialreportsthroughitsAssetManagementWorkingGroup(AMWG).Oneofthesereports,writtenbylawfirmFreshfieldsBruckhausDeringerandtitledA Legal Framework for the Integration of Environmental, Social, and Governance Issues into Institutional Investment,madethefiduciarycaseforESGinvesting.Thereportconcludedthatthistypeofanalysisislegallypermissibleand“arguablyrequired”aspartoffiduciaryobligationinninejurisdictions:Australia,Canada,France,Germany,Italy,Japan,Spain,theUKandtheUnitedStates.Inaddition,theAMWG,currentlyco-chairedbyJulieFoxGortefromUSSIFmemberPaxWorld,releasedaseriesofreportsexaminingthematerialityofenvironmental,socialandgovernanceissuestoequitypricing,startingin2004.Thesereportshelpedusherin


aperiodofthemainstreamingofresponsibleinvestment,includingthegrowthofthePrinciplesforResponsibleInvestment(PRI),createdbyacoordinatedprocessoftheUNEP-FIandtheUNGlobalCompact.


Thispaperdetailstheimpressiveimpactofsustainableandresponsibleinvestment(SRI).Itprovidesstories,facts,andfiguresthatdescribehowthesestrategieshavedefinitivelyandpositivelyaffectedtheinvestmentindustry,individualinvestors,companies,communities,publicpolicyandglobalstandardsetting.

Theideasandpracticesadvancedbysustainableandresponsibleinvestorshavecapturedglobalattention.Thereisgrowingacceptancethatenvironmental,socialandgovernanceissuesarematerial;someofthemostsophisticatedinvestorsaroundtheworldnowunderstandthatSRIprovidesimportantinsightsandmitigatesriskswhilealsobenefitingsociety.

Theinvestmentindustryhaschangedsignificantlyasthedisseminationandpracticeoftheseconceptshavespurredthegrowthofvariousinnovativeinvestmentvehicles.ThegrowingnumberofstockexchangeswithESGlistingrequirementsalsodemonstratestheimpactthatsustainableinvestorshavehadonglobalcapitalmarkets.Individualinvestorscannowreachouttospecializedsustainableinvestmentfinancialadvisorswhopresentagrowingarrayofinvestmentopportunities.ManyindividualshavetheopportunitytoinvestinretirementplansthatincludeoneormoreSRIoptions.Communitydevelopmentfinanceandsocialventurecapitalinitiativesareembracedbynumerousfoundations,highnetworthindividuals,andotherinvestors,aspartofprogram-relatedinvestingandimpactinvestingcommitments.

TheexamplesofimpactcapturedinthispaperdemonstratethatSRIhascontributedtofundamentalchangesinthewaycompaniesoperate.Agrowingnumberofpubliclytradedcompaniesandprivateequityfirmslookatenvironmental,socialandgovernanceissuesinamoreformalwayaspartoftheirdecision-making.Somecompaniesaredisclosingtheirenvironmentalandsocialperformanceinthesamewayastheyreporttheirfinancialperformance.Asillustratedintheexamples,manycompanieshavechangedthewaytheydobusinessasaresultofengagementwithsustainableinvestors.Inshort,theentireinvestmentchainhasbeenalteredbythesustainableandresponsibleinvestingfield.

Responsibleinvestmenthascontributedtothecreationofintermediariestofinancecommunityinitiativesandhashelpedbuildwealthinunderservedcommunitiesworldwide.Betterpublicpolicieshavebeendevelopedasaresultoftheworkofsustainableinvestors,andanarrayoffield-buildingandstandard-settingorganizationshavebeencreated—manyofthemstartedandmanagedbysustainableandresponsibleinvestmentprofessionalsasnon-profitorganizations.

Sustainableandresponsibleinvestorshaveoftenachievedtheseresultsbyworkinginclosecollaborationwithcivilsocietyorganizations,governmentagenciesandothernon-investorstakeholders.

Atatimeofincreasingconcernsaboutglobaleconomicandenvironmentcrises,andglobalhealthandpovertyconcerns,peoplearesearchingforinvestmentsthatcanaddressthesechallenges.Ultimately,thepathtoasustainablefuturerequiresawarenessthatcorporateperformance,investmentperformance,andenvironmental,socialandgovernanceissuesareinterconnectedandinseparable.


1. http://www.unpri.org/about-pri/about-pri/(accessedAugust2013).

2. Whilethispaperfocusesonexamplesoftheimpactthatresponsibleinvestorshavehadinthepasttwentyyears,onenotablehistoricexampleshouldbementioned:theanti-apartheidcampaignsthatplayedaroleinadvancingdemocracyinSouthAfrica.ToprotestagainsttheSouthAfricanregime’ssystemofracialinequality,numerousendowmentsandotherinstitutionsdivestedtheirportfoliosofcompaniesdoingbusinessinthecountry,beginninginthe1970sandcontinuingthroughthe1980s.OtherinstitutionalinvestorsurgedcompaniesoperatinginSouthAfrica,sometimesthroughshareholderresolutions,toworkformeaningfulchangeinthatcountry.InvestoreffortsandadvocacyhelpedcreatetheUSdomesticpoliticalenvironmentthatenabledthepassageoftheComprehensiveAnti-ApartheidActin1986.TheSouthAfricangovernmentwasinfluencedinpartbythegrowinginternationaloutcryoverapartheid—andtighteningsanctions—tobeginnegotiationswithblackoppositionleadersonatransitiontothecountry’sfirstdemocraticelectionsin1994.

3. FreshfieldsBruckhausDeringer,A Legal Framework for the Integration of Environmental, Social, and Governance Issues into Institutional Investment,UNEPFinanceInitiative,October2005,availableat http://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf.

4. CFAInstitute,Environmental, Social, and Governance Factors at Listed Companies: A Manual for Investors,May2008,availableathttp://www.cfapubs.org/toc/ccb/2008/2008/2.

5. See,forexample,KimberlyGladman,TenThingstoKnowAboutResponsibleInvesting&Performance,GovernanceMetricsInternational,GMIRatings,2011,availableathttp://www3.gmiratings.com/wp-content/uploads/2012/10/GMIRatings_10Things_102012.pdf.TheGladmanpaperdrawsinpartonanacademicpapersummarizingfifty-oneinfluentialstudiespublishedinEnglishsincethe1990sonresponsibleinvestment:AndreasG.F.Hoepner&DavidG.McMillan,Research on “Responsible Investment”: An Influential Literature Analysis Comprising a Rating, Characterisation, Categorisation and Investigation,2009,availableathttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1454793.ForanalysisofSRImutualfunds,seeJavierGil-Bazo,PabloRuiz-Verdú,&AndréA.P.Santos,The Performance of Socially Responsible Mutual Funds: The Role of Fees and Management Companies,2008,availableathttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1307043;RobBauer,KeesKoedijk,&RogérOtten,International Evidence on Ethical Fund Performance and Investment Style,LimburgInstituteofFinancialEconomics(LIFE),2002,availableathttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=297882.AdditionalstudiesbytheacademicandbrokerresearchfirmMercerincludethefollowing:Marsh,Mercer,Kroll,GuyCarpenter,OliverWyman[Mercer],Shedding Light on Responsible Investment: Approaches, Returns, and Impacts,2009,availableathttp://www.law.harvard.edu/programs/lwp/pensions/conferences/cm_europe12_09/Shedding_light_on_responsible_investment_free_version.pdf;andUNEPFinanceInitiativeandMercer,Demystifying Responsible Investment Performance: A Review of Key Academic and Broker Research on ESG Factors,2007,availableathttp://www.unepfi.org/fileadmin/documents/Demystifying_Responsible_Investment_Performance_01.pdf.

6. RobertEccles,IoannisIoannou,&GeorgeSerafeim,The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,HarvardBusinessSchool,July2013.

7. ExamplescanbefoundinChapterFour.

8. Kinder,Lydenberg,Domini&Co.,theoriginatoroftheindex,laterchangeditsnametoKLDResearch&Analytics.TheMSCIKLD400SocialIndex,launchedinMay1990,wasoneofthefirstSRIindicesinthemarket.Seewww.msci.com/products/indices/esg.

9. See,forexample,DanDiBartolomeo&LloydKurtz,Managing Risk Exposures of Socially Screened Accounts,1999,availableathttp://www.northinfo.com/documents/63.pdf;MeirStatman,Socially Responsible Indexes: Composition, Performance, and Tracking Errors,SantaClaraUniversity,May2005,availableathttp://responsiblebusiness.haas.berkeley.edu/documents/SociallyResponsibleIndexes_Statman.pdf

10. USSIFFoundation,Report on Sustainable and Responsible Investing Trends in the United States 2012,2012.

11. ClimateBondInitiative,Bonds and Climate Change: The State of the Market in 2013,2013,availableathttp://www.climatebonds.net/files/Bonds_Climate_Change_2013_A3.pdf.

http://www.unpri.org/about-pri/about-pri/

http://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf

http://www.cfapubs.org/toc/ccb/2008/2008/2

http://www3.gmiratings.com/wp-content/uploads/2012/10/GMIRatings_10Things_102012.pdf

http://www3.gmiratings.com/wp-content/uploads/2012/10/GMIRatings_10Things_102012.pdf

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1454793.


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1307043

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1307043



http://www.law.harvard.edu/programs/lwp/pensions/conferences/cm_europe12_09/Shedding_light_on_responsible_investment_free_version.pdf



http://www.unepfi.org/fileadmin/documents/Demystifying_Responsible_Investment_Performance_01.pdf

http://www.unepfi.org/fileadmin/documents/Demystifying_Responsible_Investment_Performance_01.pdf

http://www.hbs.edu/faculty/Publication%20Files/12-035_a3c1f5d8-452d-4b48-9a49-812424424cc2.pdf

http://www.hbs.edu/faculty/Publication%20Files/12-035_a3c1f5d8-452d-4b48-9a49-812424424cc2.pdf

www.msci.com/products/indices/esg

http://www.northinfo.com/documents/63.pdf

http://responsiblebusiness.haas.berkeley.edu/documents/SociallyResponsibleIndexes_Statman.pdf

http://responsiblebusiness.haas.berkeley.edu/documents/SociallyResponsibleIndexes_Statman.pdf

http://www.climatebonds.net/files/Bonds_Climate_Change_2013_A3.pdf

http://www.climatebonds.net/files/Bonds_Climate_Change_2013_A3.pdf


12. WorldBankGreenBonds,availableathttp://treasury.worldbank.org/cmd/htm/WorldBankGreenBonds.html (accessedJuly2013).

13. StateStreetGlobalAdvisorsPressRelease,State Street Global Advisors Launches Green Bond Investment Strategy,October19,2011,availableathttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGtnwJ4_P6M8.

14. TheNon-profitTimes,Foundations Not Making Many Program-Related Investments,May21,2013,availableathttp://www.thenonprofittimes.com/news-articles/foundations-not-making-many-program-related-investments/.

15. Ibid.

16. JulieSunderland,The Role of Biotech Investing in the Fight Against Neglected Diseases,BillandMelindaGatesFoundation,July28,2012,accessibleathttp://www.impatientoptimists.org/Posts/2012/06/The-Role-of-Biotech-Investing-in-the-Fight-Against-Neglected-Diseases?p=1.

17. USSIFFoundation,ReportonSustainableandResponsibleInvestingTrendsintheUnitedStates2012,2012.See Summary at http://www.ussif.org/files/Publications/12_Trends_Exec_Summary.pdf.

18. StevenLawrenceandReinaMukai,Key Facts on Mission Investing,TheFoundationCenter,October.2011,availableathttp://foundationcenter.org/gainknowledge/research/pdf/keyfacts_missioninvesting2011.pdf.

19. FormoreinformationaboutthemandateandprojectsoftheGlobalImpactInvestingNetwork,pleaseseewww.thegiin.org.

20. Forexamplesofimpactinvestmentsmadebytheseearlypractitioners,seeBridgesVentures&TheParthenonGroup, Investing for Impact: Case Studies Across Asset Classes,March2010,availableathttp://www.parthenon.com/ThoughtLeadership/InvestingforImpactCaseStudiesAcrossAssetClasses.

21. U.S.SecuritiesandExchangeCommission,SEC Votes to Seek Public Comment on U.S. Proxy System,July14,2010,availableathttp://www.sec.gov/news/press/2010/2010-122.htm.

22. AsYouSow,Si2andProxyImpact,Proxy Preview 2013,February2013,availableat http://www.proxypreview.org/.

23. Ibid.

24. Ibid.

25. Themajorityofshareholderproposalsareadvisory—phrasedasrequeststomanagement—andinthesecases,managementisnotlegallyobligatedtoimplementthem.Relativelyfewshareholderproposalscallforbylawamendments,whichwouldhavetobeimplementediftheypassed,butwhichmostproponentsconsidertoobluntatoolforraisingconcernstomanagement.

26. Formoreinformationonshareholderresolutions,includingwithdrawals,seeCeres,Investor Power: Shareholder Success on Climate, Energy & Sustainability,February2012,availableathttp://www.ceres.org/files/in-briefs-and-one-pagers/proxy-power-shareholder-successes-on-climate-energy-sustainability/view.

27. 2010 Proxy Season Sees Record Number of Climate Change Resolutions,SustainableBusiness.comNews,July9,2010,availableathttp://www.sustainablebusiness.com/index.cfm/go/news.display/id/20650.

28. WaldenAssetManagement,Research & Engagement Brief: Fourth Quarter 2012,2012.

29. RichardA.Liroff,Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations,InvestorEnvironmentalHealthNetworkandtheInterfaithCenteronCorporateResponsibility,December2011,availableathttp://www.iehn.org/publications.reports.frackguidance.php.

30. SeeWaldenAssetManagement,Research & Engagement Brief: Fourth Quarter 2012,2012.

31. RebeccaAdamsonandScottKlinger,FirstPeoplesWorldwide:The Histories of Social Investing and Indigenous Peoples: Using the Tools of Diverse Cultures to Restore Balance to a Fractured World,February2008,availableat http://www.firstpeoples.org/news/FPW-HistoriesOfSocialInvestingFeb2008.pdf.

32. ChristianBrothersInvestmentServices,Inc.PressRelease,Christian Brothers Applauds Efforts by Newmont Mining to Improve Relations With Communities; Calls For Substantive Implementation,April28,2009,availableat http://www.cbisonline.com/page.asp?id=986.

33. BostonCommonAssetManagement,Active Investor Social Update,ThirdQuarter,2011.

http://treasury.worldbank.org/cmd/htm/WorldBankGreenBonds.html

http://www.bloomberg.com/apps/news%3Fpid%3Dnewsarchive%26sid%3DaGtnwJ4_P6M8

http://www.bloomberg.com/apps/news%3Fpid%3Dnewsarchive%26sid%3DaGtnwJ4_P6M8

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGtnwJ4_P6M8.

http://www.thenonprofittimes.com/news-articles/foundations-not-making-many-program-related-investments/

http://www.impatientoptimists.org/Posts/2012/06/The-Role-of-Biotech-Investing-in-the-Fight-Against-Neglected-Diseases?p=1

http://www.impatientoptimists.org/Posts/2012/06/The-Role-of-Biotech-Investing-in-the-Fight-Against-Neglected-Diseases?p=1


http://foundationcenter.org/gainknowledge/research/pdf/keyfacts_missioninvesting2011.pdf

www.thegiin.org

www.thegiin.org

http://www.parthenon.com/ThoughtLeadership/InvestingforImpactCaseStudiesAcrossAssetClasses

http://www.parthenon.com/ThoughtLeadership/InvestingforImpactCaseStudiesAcrossAssetClasses

http://www.sec.gov/news/press/2010/2010-122.htm

http://www.proxypreview.org

http://www.ceres.org/files/in-briefs-and-one-pagers/proxy-power-shareholder-successes-on-climate-energy-sustainability/view

http://www.ceres.org/files/in-briefs-and-one-pagers/proxy-power-shareholder-successes-on-climate-energy-sustainability/view

SustainableBusiness.com

http://www.sustainablebusiness.com/index.cfm/go/news.display/id/20650

http://www.iehn.org/publications.reports.frackguidance.php

http://www.firstpeoples.org/news/FPW-HistoriesOfSocialInvestingFeb2008.pdf

http://www.cbisonline.com/page.asp?id=986.


34. ChurchoftheBrethrenBenefitTrustPressRelease,ConocoPhillips commits to indigenous peoples’ rights with support from BBT,August,26,2011,availableathttp://www.brethrenbenefittrust.org/news/conocophillips-commits-indigenous-peoples%E2%80%99-rights-support-bbt.

35. TrilliumAssetManagementPressRelease,Trillium Withdraws Shareholder Proposal at Apple Inc.,December19,2012,availableathttp://www.trilliuminvest.com/uncategorized/trillium-withdraws-shareholder-proposal-at-apple-inc/.SeealsoAsYouSow,Si2andProxyImpact,ProxyPreview2013,February2013,availableat http://www.proxypreview.org/,accessedAugust2013.

36. ShelleyAlpern,Sexual Orientation Non-discrimination,inProxyReview2011,AsYouSow,SustainableInvestmentsInstituteandProxyImpact,2011,availablehttp://www.asyousow.org/publications/ProxyPreview_2011.pdf.

37. WaldenAssetManagement,Research & Engagement Brief,FourthQuarter,2012.

38. USSIFFoundation,Report on Sustainable and Responsible Investing Trends in the United States 2012,2012.See Summary at http://www.ussif.org/files/Publications/12_Trends_Exec_Summary.pdf.

39. Ibid.

40. Ibid.DatafromSustainableInvestmentsInstituteandInterfaithCenteronCorporateResponsibility.

41. KPMG,KPMG International Survey of Corporate Responsibility Reporting,2011,availableathttp://www.kpmg.com/PT/pt/IssuesAndInsights/Documents/corporate-responsibility2011.pdf.

42. USSIFFoundation,ReportonSustainableandResponsibleInvestingTrendsintheUnitedStates2012,2012.See Summary at http://www.ussif.org/files/Publications/12_Trends_Exec_Summary.pdf.

43. WaldenAssetManagement,Research & Engagement Brief,FirstQuarter2013.

44. DominiSocialInvestments,Social Impact Update—First Quarter 2013,availableathttp://www.domini.com/shareholder-advocacy/index.htm.

45. WaldenAssetManagement,Research & Engagement Brief,FourthQuarter2012.

46. LeviStrauss&Coisaprivatelyheldcompany,sincethesharesofthecompanystockarenotpubliclytraded,althoughitdoeshavepublicbondholders.

47.Formoreinformationonthenegotiationsprecedingthebuyout,seeKambizForoohar,KKR Barbarians Go Green as Buyout Firms Profit Cutting Energy,BloombergMarketsMagazine,April6,2011,availableat http://www.bloomberg.com/news/2011-04-06/kkr-barbarians-go-green-as-buyout-firms-embrace-more-profit-in-less-energy.html.

48.InterfaithCenteronCorporateResponsibilityPress,Synagro, Operator of NY Organic Fertilizer Facility in South Bronx Focus of Faith-Based Institutional Investors Shareholder-Sponsored Environmental Resolution,January30.2006,availableathttp://www.iccr.org/news/press_releases/2006/pr_synagro020106.htm.

49.SisterValerieHeinonen,OrderofSt.Ursula,Shareholder Advocacy: Strategy for Socially Responsible Investing,¡Viva!Mercy,January-February2008,availableathttp://www.mercyinvestmentservices.org/storage/documents/Shareholder_Advocacy.pdf.

50. Arecentpublicationco-editedbytheSanFranciscoFederalReserveBankandNancyAndrewsoftheLowIncomeInvestmentFund,What Works for America’s Communities: Essays on People, Place & Purpose,2012,offersarticlesonthehistory,currentpractice,andimpactofcommunitydevelopmentfromtheperspectivelargelyofCDCsandCDFIs.Availableathttp://www.frbsf.org/community-development/publications/special/investing-in-what-works-american-communities-people-place-purpose/.

51. Manyhigh-impactnationalintermediariesillustratethescaleandimpactcommunityinvestingcanachieve.TheseincludeNCBCapitalinWashington,DC;EnterpriseCommunityinBaltimore,Maryland;OpportunityFinanceNetworkinPhiladelphia,PA;andLISC.EstablishedbytheFordFoundationin1979,LISChasmobilizedover$12billionfor289,000affordablehomesandforchildren.

52. OpportunityFinanceNetwork,CARS™, the rating system for CDFIs,June2009,availableathttp://www.opportunityfinance.net/store/downloads/cars_set.pdf.

53. AmandaFrazierWongandSarahWolff,New Markets Tax Credit Impacts: A Case Study in Durham, North Carolina, Self-Help Credit Union,March2010,availableathttp://www.novoco.com/new_markets/resource_files/reports/selfhelp_casestudy_0310.pdf.

http://www.brethrenbenefittrust.org/news/conocophillips

http://www.trilliuminvest.com/uncategorized/trillium-withdraws-shareholder-proposal-at-apple-inc/

http://www.trilliuminvest.com/uncategorized/trillium-withdraws-shareholder-proposal-at-apple-inc/

http://www.proxypreview.org

http://www.asyousow.org/publications/ProxyPreview_2011.pdf

http://www.asyousow.org/publications/ProxyPreview_2011.pdf


http://www.kpmg.com/PT/pt/IssuesAndInsights/Documents/corporate-responsibility2011.pdf

http://www.kpmg.com/PT/pt/IssuesAndInsights/Documents/corporate-responsibility2011.pdf


http://www.domini.com/shareholder-advocacy/index.htm

http://www.domini.com/shareholder-advocacy/index.htm

http://www.bloomberg.com/news/2011-04-06/kkr-barbarians-go-green-as-buyout-firms-embrace-more-profit-in-less-energy.html

http://www.bloomberg.com/news/2011-04-06/kkr-barbarians-go-green-as-buyout-firms-embrace-more-profit-in-less-energy.html

http://www.iccr.org/news/press_releases/2006/pr_synagro020106.htm

http://www.mercyinvestmentservices.org/storage/documents/Shareholder_Advocacy.pdf

http://www.mercyinvestmentservices.org/storage/documents/Shareholder_Advocacy.pdf

http://www.frbsf.org/community-development/publications/special/investing-in-what-works-american-communities-people-place-purpose/

http://www.frbsf.org/community-development/publications/special/investing-in-what-works-american-communities-people-place-purpose/

http://www.opportunityfinance.net/store/downloads/cars_set.pdf

http://www.opportunityfinance.net/store/downloads/cars_set.pdf

http://www.novoco.com/new_markets/resource_files/reports/selfhelp_casestudy_0310.pdf

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54. CDFI Fund Announces Provider to Expand the Capacity of CDFIs to Support Financing for Healthy Food Retail,CDFIFund,CommunityDevelopmentFinancialInstitutionsFund,UnitedStatesDepartmentoftheTreasury,November2,2010,availableathttp://www.cdfifund.gov/news_events/CDFI-2010-48-CDFI-Fund-Announces-Provider-to-Expand-Healthy-Food-Retail-Financing-Support.asp.

55. InformationbyRobFernandez,VicePresidentatBreckenridgeCapitalAdvisersandcitingThe Bond Buyer: Annual Bond Sales(dollarvolume),2013.

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57. USSIFFoundation,Sustainability Trends in US Alternative Investments,2011.

58. SecuritiesandExchangeCommissionPressRelease,SEC Announces Members of New Investor Advisory Committee,April9,2012,availableathttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171488168#.UfraX5Kko8Q.

59. JustinT.Hilley,SEC finalizing Dodd-Frank CEO pay ratio rule within two months,Housingwire,March16,2012,availableathttp://www.housingwire.com/articles/sec-finalizing-dodd-frank-ceo-pay-ratio-rule-within-two-months.

60. Between1999and2007,justbeforethestartoftherecession,responsibleinvestorsfiledshareholderresolutionswithfinancialinstitutions,warningthatpredatorylendinginthesubprimemortgagemarketposedsignificantfinancialandreputationalrisksforthesecompaniesandtheirshareholders.Formoreinformation,seeSusanWilliams, Investors Enter 10th Year of Action on Predatory Loans,inCorporateSocialIssuesReporter,RiskMetricsGroup,December2007.

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